Geopolitical Risks in the Middle East Are Affecting Markets

The ongoing developments between Iran and Israel have caused fluctuations in financial markets. While oil prices have risen, gold and the US dollar have gained value. The economic volatility was evaluated by Assoc. Prof. Dr. Asil Azimli, General Secretary of the Cyprus International University (CIU) and a faculty member at the Faculty of Economics and Administrative Sciences.

Azimli noted that the Middle East is a tense region in terms of geopolitical risk, stating that disruptions in stability and potential breaks in the oil supply chain would push prices higher, which could negatively impact company costs and market pricing.  He emphasized that political instabilities and sectarian and political differences in the Middle East feed geopolitical tensions. Assoc. Prof. Dr. Azimli highlighted that such tensions also influence investor behavior. Due to declining expectations for cash flow, increased risk premium expectations, the search for safe ports, and a deteriorating trust environment, markets could experience downturns. He further explained that rising energy prices would both reduce corporate profitability and lead to inflation and low growth in energy-importing countries while oil-exporting nations could benefit.

Azimli pointed out that Iran’s threat to close the Strait of Hormuz could significantly impact oil-importing countries, reducing oil supply, pushing prices even higher, and creating inflationary environments in those countries. As Turkey is an oil-importing country, Azimli stated that it could face increased costs, high inflation, a growing trade deficit, and a weakening Turkish lira. He also noted that investors fleeing risky assets could lead to declines in market valuations. Azimli stated that during times of uncertainty, gold has long stood out as a haven. He added that recent studies have also identified green bonds and shares of socially responsible companies as emerging haven assets.
For young researchers, Azimli highlighted the importance of indices created through text analysis in tracking economic and geopolitical risks. He concluded by noting that economic vulnerabilities can be managed by reducing external dependence, lowering the trade deficit, and maintaining strong reserves.