From Gonzalo Lira:
War between Israel and Iran now seems inevitable. Leon Panetta claimed that it would be this coming spring -- and I see no reason to doubt him.
How an Israeli-Iranian war will play out -- that is, whether it will draw in more geopolitical actors (such as the U.S.), or if it will be a series of limited attacks, counter-attacks, and then stalemate -- is impossible to predict. War tends to take on a life of its own.
But we can predict how it will affect the global markets.
A very reasonable assumption is that oil supplies, especially to Europe, will be severely curtailed. Aside from the fact that one-fifth of the world's oil production passes through the Straight of Hormuz -- ground zero of a war with Iran --the rest of the world, and especially Europe, depends on Iranian oil. As discussed in the SPG Scenario of this past June ("An Israeli-Iranian War?"), close to 10% of the eurozone's oil comes from Iran -- and the countries most particularly dependent on Iranian oil are precisely those most in trouble right now: The so-called PIIGS.
So oil prices will inevitably rise. And so -- just like 1979, after the overthrow of the Shah of Iran and the subsequent Oil Shock -- the world's economies will experience another likely oil shock, which will...
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