The podcast discusses the economic impacts of rising geopolitical instability, focusing on the effects on global markets and the global economy. It analyzes the recent drone strike in Jordan, explores market reactions to geopolitical tensions, and discusses the implications of low oil prices. The podcast also expresses concern about rising debt levels and the axis of destabilization formed by Iran, North Korea, and Russia.
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Quick takeaways
Geopolitical instability in the Middle East poses challenges in constraining Iran's actions and escalating conflicts through supporting proxy groups.
Markets primarily focus on macroeconomic factors like the U.S. election, U.S.-China relations, growth and inflation outlook, rather than localized geopolitical tensions in the Middle East.
Deep dives
Escalation of Proxy Activities in the Middle East
Jared Cohen explains that Iran is destabilizing the region by supporting different proxy groups such as the Houthis in Yemen, Hezbollah in Lebanon, and Shia Arab militias in Iraq. This escalating conflict poses challenges in identifying meaningful red lines to constrain Iran's actions. The recent drone strike on U.S. troops in Jordan is seen as another escalation. The attack targeted a crucial land corridor connecting Syria, Jordan, and Iraq, facilitating the transport of resources and weapons to Hezbollah and Syrian proxies.
Market Reaction towards Geopolitical Tensions
Sam Morgan highlights that markets have historically shrugged off geopolitical tensions in the Middle East, considering them to be localized events. While oil prices may briefly spike during such conflicts, they tend to stabilize quickly. Market focus is primarily on macro topics like the U.S. election, U.S.-China relations, growth and inflation outlook, monetary and fiscal policies across different regions. The Middle East crisis does affect markets, but the primary attention remains on these broader macroeconomic factors.
Implications of Low Oil Prices and Dollar as the Reserve Currency
Jared Cohen discusses the geopolitical implications of low oil prices. It benefits Europe but can be troubling for OPEC-plus countries seeking a balance between upward price impact and ensuring demand. A low oil price context could lead to increasing attacks in the Red Sea and potentially direct confrontations between the U.S. and Iran. Sam Morgan notes that while there are some desires to diversify away from the U.S. dollar as the world's reserve currency, the depth of U.S. capital markets and the effectiveness of deploying other currencies create challenges to dislodging the dollar's dominant status.
As tensions in the Middle East continue to rise, what does this mean for markets and the global economy? Jared Cohen, president of Global Affairs and co-head of the Office of Applied Innovation at Goldman Sachs, and Sam Morgan, global head of fixed income currencies and commodities sales in Goldman Sachs’ Global Banking and Markets business, discuss the economic impacts of rising geopolitical instability.