GLOBAL - An extended war in Iraq would drive up oil prices which would trigger inflation and send markets reeling, UK fund managers warn.
The financial impact of a war will relate to how long it lasts, but the worst case scenario is an extended conflict following an invasion by US and UK forces.
Threadneedle Investments’ head of global strategy Colin Robertson said an invasion was already priced into markets and while there was a lot of uncertainty, there was not a lot of mis-pricing.
But he said: “Is it going to be a quick war, in which case the oil price might fall quite sharply after initial invasion? Or is it a more prolonged war which will lead to splits within the rest of the Middle East? This will keep the oil price up for a lot longer.”
Prudential M&G head of global analysis John Hathey agreed and predicted that markets could rally if any war was resolved quickly without any mishaps. If not, a whole host of economic issues would have to be resolved.
Gartmore Investment Management market economist Jamie Lewin said: “It is going to be something that lasts months rather than days in terms of reaching its ultimate conclusion. That just means a prolonged period of uncertainty, which is not good for markets.”
Robertson advised schemes “to be up to weight in oil stocks”.
He said: “They are not particularly expensive and if stocks rise as a result of an invasion, they would make a good investment. If they don’t rise, they are not particularly expensive to buy anyway.”
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