An already fragile global economy has been shaken by Iran's drone attacks on luxury hotels and residences in Dubai and Bahrain. The strikes, which targeted locations marketed for their security, have grounded flights, stranded tourists, and forced expatriates working in finance and professional services to seek sanctuary. While state-of-the-art air defences intercepted some of the 'suicide drones', they failed to stop all of them, leaving iconic towers ablaze and passengers at Dubai International Airport running for cover.
The disruption has spread to the Strait of Hormuz, a critical chokepoint for global oil shipments. Insurers immediately cancelled policies on ships moving through the vulnerable waterway, citing war risk exclusions. With the insurance market opening, premiums are expected to soar by as much as 50 per cent, and the availability of cover remains uncertain. Iran's control over the strait gives it a powerful bargaining chip, but any escalation risks further turmoil.
As markets resume trading, investors are bracing for volatility. Gold and silver prices have been lifting for months, and defence stocks look a sure bet. Equity markets may tumble, while oil prices, already up $10 a barrel since the start of the year in anticipation of such an event, are expected to rise further. The cost of petrol for consumers will likely increase. Geopolitical uncertainties, including whether China might be emboldened to act on Taiwan, are causing commitment decisions to be postponed.
Despite holding the fourth-largest crude oil reserves globally, Iran's output accounts for less than 3 per cent of current global supply due to international sanctions and a lack of capital investment. Its only major customer is China, which receives Iranian oil from 'dark' tankers off Malaysia. The long-term impact on markets and the region depends on whether the Iranian response is short-lived, if a more amenable government emerges, and if the oil continues to flow. Anyone claiming to know the answers is lying.
