Page 61 - ICE BUSINESS TIMES February 2020

There is a hanging threat that U.S. Tourism: There is a hanging threat that
would take fewer garments from Middle East has lost its tourism U.S. would take fewer garments
from Bangladesh than from
Bangladesh than from other attraction after the back to back other countries due to geological
instabilities in the Middle East.
countries due to geological positions From Arab Spring to Syrian civil positions as U.S. would not take
as U.S. would not take any risk about war to infiltration of ISIS, any risk about the timing of
the timing of shipments and orders tourists have been hesitant going shipments and orders coming for
Bangladesh may get diverted in
to the Middle East. After the
coming for Bangladesh may get conflict, the tourism of middle that case.
diverted in that case. east may see another backlash On the other hand, Bangladesh’s
fall short of all-out war, has all the incentives to do so, and cause permanent damage. exports to the U.S. have
efforts to sabotage Saudi and initially through proxies and suggest, because many oil-dependent increased, but Bangladesh has
other Gulf oil facilities, asymmetric warfare, to avoid sectors and countries will engage in U.S.-Iran conflict and lost its position as the third or
impeded Gulf navigation, provoking an immediate U.S. precautionary stockpiling. The risk Bangladesh: fourth in the U.S. market and is
international terrorism, reaction. that Iran could attack oil production Bangladesh exported goods now at No. 7. And if a U.S.-Iran
cyber-attacks, nuclear facilities or disrupt major shipping worth $19.3 billion in the first war starts now, a new crisis will
proliferation and more. Any routes creates a “fear premium”. add up and high chances will
of these could lead to an Global Hence, even a modest oil-price half of 2019-20 with a 5.84 arise that India and Vietnam
unintentional escalation of Economy: increase to $80 per barrel would lead percent drop year-on-year and may get benefitted from this as
Assumptions: the conflict. to a sustained risk-off episode, with missing the target by 12.77 these two countries have the
Moreover, the Iranian Oil: U.S. and global equities falling by at percent. After continuous drop capacity to match the low prices
Following the U.S. assassination of Iranian regime’s survival is more Though the U.S. is less least 10%, in turn, hurting investor, for four months, exports grew
al-Quds commander Qassem Suleimani and Iran’s threatened by an internal dependent on foreign oil than business and consumer confidence. by around 3 percent to $3.52 of Bangladesh.
initial retaliation against two Iraqi bases housing revolution than by a in the past, even a modest price billion in December, but still Ending Note:
U.S. troops, financial markets moved into risk-off full-scale war. Because an spike could trigger a broader Stock Market: missed the target by 13.54 It is worth remembering that
mode: oil prices spiked by 10%, U.S. and global invasion of Iran is unlikely, downturn or recession, as the After U.S. killing Iran’s most powerful percent. global corporate capital spending
equities dropped by a few percentage points and the regime could survive a one that occured in 1990. While general, markets reacted accordingly The signs of a rebound,
safe-haven bond yields fell. In short order, war (despite a very damaging an oil-price shock would boost as oil and gold prices shot up while however, are eclipsed as traders was already severely dampened
though, despite the continuing risks of a aerial bombing campaign) – U.S. energy producers’ profits, the stock market fell and interest rates across the globe have started last year, owing to worries about
U.S.-Iran conflict and the implications that it and even benefit as Iranians the benefits would be weighing in how the U.S. an escalation in the U.S.-China
would have for markets, the view that both sides rally around the government, outweighed by the costs to U.S. declined. Market prognosticators have airstrike’s highly unpredictable trade and technology war and
would eschew further escalation calmed investors as they briefly did in oil consumers (both households an old rule of thumb that investors the possibility of a hard Brexit.
and reversed these price movements, with response to the killing of and firms). Overall, U.S. private hate uncertainty more than anything, impact will be felt beyond the Just as these risks – that is, the
equities even approaching new highs. Suleimani. Conversely, a spending and growth would and there are few situations more Middle East. Although U.S. “option value of waiting” – were
That turnabout reflects two assumptions. First, full-scale war and the slow, as would growth in all of uncertain than the threat of war. President Donald Trump receding, a new one has
markets are banking on the fact that neither Iran ensuing spike in oil prices the major oil-importing According to a CNBC report, “Crude insisted that he ordered the emerged. Leaving aside the
nor the U.S. wants a full-scale war, which would and global recession would economies, including Japan, prices see a positive change more than killing of commander Qassem direct negative impact of higher
threaten both the Iranian regime and Donald lead to regime change in the China, India, Bangladesh, 80% of the time in the month following Soleimani on Friday aimed to energy prices, fears of an
Trump’s re-election prospects. Second, investors U.S., which Iran badly South Korea, Turkey and most major events. Gold and stocks avoid a war with Iran, escalating U.S.-Iran conflict
seem to believe that the economic impact of a desires. Hence it can be easily European countries. Finally, followed as the next most successful continuing threats have further could lead to more precautionary
conflict would be modest. After all, oil’s analyzed that, Iran not only although central banks would asset classes.” The analysis is based rattled foreign capitals and household saving and lower
importance as an input in production and can afford to escalate, but it not hike interest rates following on “20 crisis events in the Middle East global markets. On Wall Street, capital spending by firms,
consumption has fallen sharply since last an oil-price shock, nor do they over the last three decades, including the stock market fell as oil further weakening demand and
oil-shock episodes, such as the 1973 Yom Kippur have much space left to loosen the attacks on oil facilities in Saudi prices jumped after the news of
war, Iran’s 1979 Islamic revolution and Iraq’s monetary policies further. Arabia last September.” How U.S. the general’s death: The price of growth.
1990 invasion of Kuwait. Moreover, the U.S. itself According to an estimate by JP stock markets react to U.S. and Iran Brent oil, the international Moreover, even before that risk
is now a major energy producer, inflation Morgan, a conflict that blocks emerged, some analysts warned
expectations are much lower than in past the strait of Hormuz for six tensions this time will eventually boil benchmark, surged in the early that growth this year might be as
decades, and there is little risk of central banks months could drive up oil prices down to the escalation matrix in the hours of Hong Kong trading to tepid as growth in 2019. Markets
raising interest rates following an oil-price shock. by 126%, to more than $150 current conflict. President Trump nearly $70 a barrel — an and investors had been looking
Though on the other side, even if the risk of a (£115) a barrel, setting the already warned Iran about heavy increase of $3. The tension has forward to a period of easier
full-scale war may seem low, there is no reason to stage for a severe global consequences. If the tensions escalate, shaken the market, businesses monetary policies and an end to
believe that U.S.-Iranian relations will return to recession. And even a more it might pressurize the U.S. and global and analysts in Bangladesh as the tail risks associated with the
the status quo ante if we see the history and read limited disruption – such as a equity market. Pimchanok Vonkorpon, well. Gold prices surged to trade war and Brexit. Many
the equation right between both the countries. It one-month blockade – could Director-General of the ministry's six-year high on the first week market watchers were hoping
is also been speculated by the political analysts push the price up to $80 a Trade Policy and Strategy Office of of January. that the synchronised global
that those Iranian rockets were merely the first barrel. But even these estimates Bangkok, issued the warning for the Export Promotion Bureau data slowdown of 2019 (when growth
salvo in a response that will build up as do not fully capture the role country after the assasination of Iran’s on the first week of January fell to 3%, compared with 3.8% in
November’s U.S. presidential election approaches that oil prices play in the global general and stated that this incident showed the sector earned $6.02 2017) would end, with growth
and the conflict will continue to feature economy. The price of oil can will impact the macroeconomy and billion in the July-December approaching 3.4% this year. But
aggression by regional proxies (including attacks spike much more than a basic cause fluctuations in the currency of period, 6.21 percent less than
against Israel), direct military confrontations that supply-demand model would stock markets. the same period last fiscal year. this outlook has ignored many
remaining fragilities.

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