Betting on a strike on Iran?

March 13, 2012

It’s always hard to calculate how to factor political risk into investment decisions, it can feel a bit like taking a punt.

That may be why analysts are starting to look at the bets on Intrade, a Dublin-based online exchange, to measure market expectations of issues like the chances of a U.S. or Israeli strike on Iran.

Richard Fox, head of Middle East and Africa sovereigns at ratings agency Fitch, told a seminar last week that Intrade contracts show fears are rising of such a strike.

Expectations of a strike at the end of the third quarter had soared to more than 40 percent, compared with under 20 percent only a month before.

That heightened concern has levelled off a bit since then, with expectations of a strike at the end of Q3 currently at 30 percent. But expectations of a strike by the end of the fourth quarter remain at 39 percent.

The fears have also fed into oil prices, which have soared above $125 a barrel. It’s draining some of the euphoria triggered by last week’s orderly debt restructuring for Greece and by the massive liquidity injections from the European Central Bank.

According to Imran Ahmad, emerging markets strategist at RBS:

High oil prices have preceded most U.S. recessions. They have an impact on global growth, on the current account of net importing countries like Turkey, and they are also not good for inflation. We continue to expect oil prices to remain high on Middle East tension.

 

 

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