As the tragic conflict between Israel and the Palestinian militant group Hamas unfolds, its potential impact on FTSE 100 stocks is becoming a secondary but unavoidable concern for investors like me.
While the devastating human toll remains at the forefront of our minds, those of us with financial holdings in the FTSE 100 are also faced with questions about how our portfolios (and retirement plans) could be affected.
The human and economic toll
The conflict escalated when Hamas attacked Israel on 7 October, killing at least 1,300 people. Israel’s retaliatory strikes have led to around 2,450 deaths in Gaza. Those figures are from the most recent BBC reports.
This tragic situation could impact regional stability and, consequently, global markets, including FTSE 100 stocks.
Ripple effects
According to analysis from the trading platform IG, the shares of oil majors like BP and Shell on the FTSE 100 could actually rise due to the conflict.
But the Middle East is not just about oil. It’s also a critical region for global trade routes. For example, the Suez Canal and the Strait of Hormuz are in the region
A protracted conflict could lead to disruptions in worldwide supply chains, affecting FTSE 100 companies that rely on these routes for importing and exporting goods.
Too early to tell
A report from Reuters highlighted the layer of uncertainty this conflict adds to global markets, which are already dealing with the aftermath of the pandemic and the current war in Ukraine. This conflict is now a “huge question mark for investors going forward“, it said, and its ripple effects could be felt in the FTSE 100 as well.
So, will this conflict tank FTSE 100 stocks?
It’s too early to tell, and so far the signs are mixed. Oil prices are up, which could be beneficial for oil giants like BP and Shell, as mentioned, but detrimental for consumer-facing companies. Yet the FTSE 100 is up 1.4% over the past five days.
However, there’s the potential for supply chain disruptions. In addition, inflation and interest rates could remain higher for longer if there’s an energy-price shock.
I won’t sugarcoat it: if risk-averse sentiment begins to take hold, we could find ourselves facing a FTSE 100 bear market.
Adding oil stocks
So, what am I doing? I’m considering adding an oil company to my portfolio, as I don’t currently have any exposure to the energy sector. I’ll probably reduce company-specific risk by going with an exchange-traded fund that contains a basket of international oil producers.
On the whole, I’ll continue adding to my portfolio when my finances allow it. This is nothing new: my philosophy is to invest spare cash no matter how hideous the headlines.
However, I will be thinking carefully about the risks the geopolitical landscape presents to individual companies when stock picking.
