Market Focus Turns To Length, Scope Of Conflict (2/2)

Aside from the duration of the conflict, the other main aspect in focus for markets will be the prospect of whether it remains limited to an Israel-Hamas war or brings in regional actors such as Hezbollah or Syria.

• Should Lebanon or Syria become directly involved it would markedly increase the prospect of a regional war developing. There have been reports of gunmen seeking to enter Israel via its northern border but so far this does not seem to be associated with a large-scale attack from Hezbollah. If Hezbollah does become actively involved in fighting the IDF for the first time since 2006, it would raise the risk further of Israel launching direct attacks on Iran (likely nuclear sites or O&G facilities) given that Tehran is seen as Hezbollah's primary backer.
• While Tehran has voiced its support for the actions of Hamas, the Israeli gov't has stated that so far there is no evidence of direct Iranian support for the terrorist group's actions.
• Should an Israel-Iran conflict emerge it would significantly raise the stakes of a regional conflict - posing major risks to both economic activity in the Middle East and potentially to hydrocarbon supplies. Given that Iran counts Russia among its allies, a direct Israel-Iran conflict would raise the risk of direct contact between Russian and US forces, given the aggressive force posture adopted by US naval vessels in the Mediterranean.