We are all entitled to our views about whether it was right for the US and Israel to attack Iran. There are arguments both for and against the war. But what is undeniable, is that there will be consequences.
It is possible that the conflict could be over in a matter of days. In which case, the world could return to some kind of normalcy quite quickly. But chances are that it could drag on for weeks, if not months. That would be terrible, not only for the innocent people of Iran but for the rest of us, too.
Think about the 165 Iranian schoolgirls who were reportedly killed in a deadly missile strike on a primary school in Minab. What have those girls ever done to deserve the brutal slaughtering? This would be considered a war crime under international humanitarian law.
It is little wonder that the Trump administration is trying to deny responsibility for the heinous act. In the same breath, the Trump administration is also claiming that the surge in oil prices as nothing more than a little glitch.
A little glitch? Since the start of the conflict, oil prices have done more than demonstrated a little glitch – they have climbed appreciably. WTI has hurtled from US$62 a barrel to over US$110 a barrel. Brent crude has risen more than 40% to US$100 a barrel.
The disruption to shipping through the Straits of Hormuz could continue to restrict the free flow of crude from the oil-rich region to the rest of the world. The narrow strip of waterway handles around a third of all seaborne crude oil.
Trouble is that many economies in Asia are heavily reliant on imported oil and gas. Those countries that are manufacturing-intensive could be even more sensitive to oil-price volatility.
Any increase in the price of crude could push up prices in other parts of the world, too. We have previously warned about inflation being anywhere, everywhere, all at once. It doesn’t take much for inflation to resurface.
As investors, we need to ensure that the companies we buy have pricing power – not just now but all the time. They should be able to raise prices without losing market share to competitors.
A good proxy for pricing power is to look at whether a company can grow or maintain its gross margin whilst growing its revenue at the same time. Pricing power should never be underestimated, especially if inflation should persist for a long time.
As to how long the war could last, we need to determine what has prompted Donald Trump and Benjamin Netanyahu to attack Iran now. Lots of reasons have been suggested. But none makes any sense.
If we really want to know why they have waged war against Iran, then Sir Arthur Conan Doyle might provide a clue. The creator of Sherlock Holmes said: “When you have eliminated the impossible, whatever remains, however improbable, must be the truth.”
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Disclosure: David Kuo does not own any of the shares mentioned.
