Charles Schwab recently sounded the alarm on Asian and European stocks as the Iran war and Strait of Hormuz blockage continued to rattle investors. (As of Wednesday morning, plans were reportedly in place to open the strait, but it's not clear what will happen.) The financial giant warned that countries on those continents are the most vulnerable to the economic fallout of oil shortages.
Investors have to prepare for any scenario and act prudently when major headlines capture the spotlight. Here's how the ongoing conflict can affect your global portfolio and some of the things you can do about it.
What's going on?
The Strait of Hormuz blockade has caused oil prices to surge. While the U.S. has more insulation due to domestic supply and additional trade routes, Charles Schwab noted in its March 13 report that "Energy supply to international countries is currently disrupted by two main chokepoints: effective closure of traffic through the Strait of Hormuz and the shut-in of LNG production in Qatar. These chokepoints have resulted in 20% of global oil and 20% of global LNG supply being cut off." Things have changed since the report was issued, of course, but in it the analysts noted: "Even if military activity ends soon, the impacts to growth, inflation, and commodity prices could linger."
Image source: Getty Images.
U.S. consumers and companies have to deal with higher oil and gas prices due to the war, but people in other parts of the world are facing fuel rationing. Rationing and conservation measures in Asia and Europe could make it more difficult to commute to work or travel, and that would have an impact on businesses, which also face higher fuel costs. And if consumer spending drops, companies could see that in their top-line results.
Is it time to sell Asian and European stocks?
Oil production won't go back to prewar levels right away, even if the current ceasefire holds and hostilities end. Multiple oil and natural gas sites were destroyed, and sites that paused production amid the bottleneck will likely need multiple weeks, or even months, to return to full capacity.
This outlook suggests Asian and European stocks could have a grim outlook over the next few months, but that doesn't mean you should rush for the exits. Stocks with solid fundamentals tend to bounce back when economic conditions improve. For instance, 2022 was a challenging year for many stocks due to high oil prices, but many of those same stocks have reclaimed all-time highs.
The Iran conflict can continue to pressure stock prices in the short run, but I expect equities to rally when a conclusion is reached. While it's impossible to time the market, it makes sense to spend time in the market (staying invested for years) and keep the money you don't need in the short term growing for you.
Are U.S. stocks safe?
Although Asian and European stocks face headwinds, that doesn't mean U.S. stocks are havens from the impacts of the Iran war. The same risks are present, as higher oil prices affect the entire world.
But there's also the same investing narrative of time in the market being most important. Investors should look at stocks based on their fundamentals and long-term catalysts. The Strait of Hormuz blockade is just another headwind that investors have encountered over the years. Investors have witnessed red-hot inflation, interest rate hikes, and a global pandemic within the past decade.
Once a resolution is reached, the current losers in the stock market may turn into some of the biggest winners.
