If you want to know what is going to happen in the Israel-Iran conflict, follow the markets. Yesterday, the oil price rose a little bit, but not much, and everywhere else in the City and on Wall Street, there was a relative sense of relaxation. As the rest of us were worrying about escalation, there was a curious calm from those who you might assume would have been panicking the most.
Today, following news of the Iran-Israel ceasefire, oil and gas prices fell. Then, when it appeared as though the truce might not last, they climbed again. The movements were not huge – certainly not of the magnitude we might expect with the outbreak of war in the Middle East, the world’s prime energy supplier.
Certainly, they are not embarking on the traditional rollercoaster, soaring and plunging on every development as they have done in past crises. So, what did the traders and their analysts know that we didn’t?
The temptation is to say they are deliberately remaining quiet, that they believe the fight will soon blow over, and there is nothing seriously to worry about. Their algorithms and calculations are telling them to sit tight and not overreact. Well, not yet anyway.
This really is a conflict which changes dramatically every hour or so; trying to keep up, or rather, ahead, is a fool’s game. But the markets are reflecting a truth that cuts through the noisy, panicky narratives about a third world war. At present, there is no sign of a full-blown, protracted conflict. There are no troops on the ground, and the action is confined to missile barrages generally aimed at military targets.
It’s for those drawn-out affairs that they employ ex-armed forces and defence strategists and circulate detailed predictions to their clients. That is when they discreetly use those with high-level political and diplomatic contacts to try and obtain inside knowledge. Also, it’s when they harry those frontline war and foreign affairs reporters they know – and have made it their business to get to know – for any detail that might prove useful. There is no evidence of this occurring. The reality is that there are no troop and artillery build-ups, no significant urgent naval redeployments; there is no front line – and the specialist writers are similarly having to play catch-up.
They, and the markets, are getting their information from the same sources as everyone else, from Donald Trump’s social media posts, from Iranian and Israeli government statements. They are watching the rolling TV news, monitoring the same publicly available digital platforms as we all are. What sets them apart is that they are zooming into the details that many others may miss among the noise.
Everything points to containment, with even the talk of imposing regime change appearing half-hearted. What they’re eyeing nervously is the Strait of Hormuz. Any true sign that this key narrow waterway is to close will provoke mayhem. That’s when we will see oil and gas start to go through the roof, equities begin to crash, and gold embark on a dizzying ascent.
Another flashing warning sign is surging long-term bond yields. Again, they are flat. Gold, too, is unaffected. It is literally all quiet on the markets front – especially when you compare it to when Trump unleashed his tariffs blast and stock markets suffered their sharpest one-day falls since Covid: the S&P 500 shedding $5 trillion in stock market value in two days, overtaking a two-day loss of $3.3 trillion in March 2020.
Again, there have been noises from Iran that they might shut the shipping route, but the markets are consoling themselves with the knowledge that the country worst affected by the blockage will be Iran itself, which is already suffering economically. And its allies, Russia and China, who buy most of its exports.
Investors are clinging to the view that Trump does not want this war, that he certainly does not wish the US to get dragged in. He was elected on a promise to avoid battles in faraway lands, and to go against that would count as a gross betrayal of his core Maga support. Similarly, they suspect that Israel does not have the stomach for something bigger, that it’s exhausted by Gaza and did not waste any time in withdrawing from southern Lebanon. Israel dares not risk drawing in Iran’s allies. Such as they are.
Of course, there is an argument to say that even Trump’s own advisers and officials do not have a clue as to what could happen next. The US bombing of the nuclear sites was hidden behind layers of subterfuge and only known in advance by a handful of his most trusted aides. Likewise, the precious nugget that Iran had signalled to Trump it was going to attack American bases beforehand to avoid casualties was kept back.
Trump sprung that on the world via his Truth Social network, just as he did with the later claim that an agreement to end hostilities had been reached. When it comes to experts claiming to know anything, bankers and brokers are just as wary of falling for a lie designed to net someone a handsome profit as they are desperate to learn the truth.
For now, though, their watch phrase is that UK trope, coincidentally a wartime instruction: Keep Calm and Carry On.
