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The ongoing tension in West Asia may have an impact on the global economy and financial markets. According to a report by Morgan Stanley, if this conflict continues for several weeks, economic and market instability may increase.
Why is the duration of the conflict important?
The report said that the duration of the conflict will be the most important factor. If the conflict is limited and of short duration, then the economic impact may be limited, but if it continues for a long time, the pressure of rising oil prices, inflation and financial uncertainty may increase. US President Donald Trump has said that this military action could last for four to five weeks.
According to the report, oil prices will play an important role in determining inflation trends.
If oil prices increase by 10 percent due to supply shock, consumer inflation in the US could increase by about 0.35 percent in the next three months.
The longer energy prices remain high, the more inflationary pressures may increase.
Where are investors turning at this time?
Investors often turn to safer investment options during times of geopolitical tension, which could strengthen the US dollar and relieve some of the inflationary pressure. However, due to oil becoming expensive, consumer spending can also be affected because people will have to spend more on petrol and diesel.
How will American domestic politics be affected?
The report also said the conflict could also impact US domestic politics, especially ahead of the upcoming midterm elections when inflation and cost of living remain major issues. If the conflict continues for a long time, rising prices could become a major issue of political debate.
How much did Trump propose for the defense budget?
According to Morgan Stanley, America’s increasing military involvement may also increase defense spending. President Trump has proposed a defense budget of about $1.5 trillion, which is about 50 percent more than the current budget and would be the largest since the Korean War. This could put additional pressure on the already high government debt and budget deficit.
How has the market been in previous wars?
History shows that markets sometimes rise even during wars. According to the report, in the three to six months after the Gulf wars, a double-digit rise was seen in the stock markets, in which the shares of defense sector companies were prominent. However, if pressure on Iran continues, oil prices may remain high. The report also said that geopolitical risks are no longer becoming a temporary shock but a permanent factor for global markets. In such a situation, investors will have to keep regional conflicts and strategic competition in mind while making investment strategies.
What is the impact of this conflict on India?
The effect of this tension is visible on India also. Volatility in Indian stock markets has increased due to rising tensions in West Asia and rising crude oil prices. On Wednesday, BSE Sensex fell 1.4 percent or 1,123 points and closed at 79,116, while Nifty 50 fell 1.6 percent or 385 points to 24,480. According to the report, in 2026, there may be opportunities for investors to increase investment in sectors related to defence, security, aerospace and industrial strength, because government spending can increase long-term demand in these sectors.
