Middle East Stocks Surge 0.8% on U.S. Iran Intervention Hopes

Middle East stock markets, particularly in Israel and Egypt, have experienced a notable surge in recent trading sessions. This upward trend is fueled by the anticipation among regional traders that U.S. intervention in the Iran conflict will expedite its resolution. The TA-35 benchmark index in Israel, for example, rose by 0.8% on a particular trading day, marking its sixth consecutive day of gains. This optimism stems from the belief that U.S. involvement could potentially de-escalate the conflict more swiftly than if left to regional powers alone.

The U.S. has been closely monitoring the situation, and its potential intervention has been a topic of intense speculation. Traders are hopeful that the U.S. will play a decisive role in bringing the conflict to a swift conclusion, thereby stabilizing the region and preventing further escalation. This sentiment has been reflected in the stock market performance, with investors showing confidence in the potential for a quick resolution.

In Israel, banking stocks contributed significantly to the gains, while defense supplier Elbit Systems Inc. saw its stock price drop by more than 2%. The cautious optimism in the market is attributed to the improving national risk premium in Israel, as noted by the vice president of trading at the Tel Aviv Stock Exchange. The market's performance is seen as a reflection of the improving security situation and the potential for a swift resolution to the conflict.

The geopolitical tensions in the Middle East have been a significant factor in global market movements. The conflict between Israel and Iran has raised concerns about potential disruptions in oil supplies and broader economic instability. However, the market's response to the U.S. involvement suggests a belief that American intervention could mitigate these risks and restore stability to the region.

Despite the initial positive reaction in the Middle East markets, global investors are bracing for potential market volatility that could trigger a rush into safe-haven assets. The unexpected actions by the U.S. president, who had previously indicated a two-week window for deciding on such strikes, have caught some traders off guard. The focus now shifts to Iran's potential responses, including the possibility of blocking the Hormuz Strait, a critical passage for oil and natural gas, or attacking U.S. assets in the region.

Iran has vowed to impose "permanent consequences" on the strikes and has reserved the right to defend its sovereignty. Speculations abound regarding Iran's potential targets, which could include U.S. bases in the region, Israel's nuclear research center near the desert town of Dimona, or an acceleration of its own nuclear program. Over the past two weeks, investors have repeatedly sought signs of hope, hoping the conflict would remain contained within the region and not involve the U.S. However, this optimism has been shattered by recent developments, and the U.S. president has not ruled out further strikes, threatening greater force if Iran retaliates.

In the short term, markets for commodities like oil will be influenced by whether Iran chooses to retaliate and escalate the conflict, thereby affecting oil supplies, or concedes and makes compromises on its nuclear program. The greatest risk in the region is the potential collapse of the Iranian regime and the ensuing civil war, similar to the situation in Syria. U.S. intervention could increase the likelihood of such an outcome.