Here’s how recent attacks on Iran could impact your wallet

BOSTON — Ever since 2020 started, U.S.-Iran tensions have been trending on social media and all over the news.

While many worry about an impending third world war, others have had their eyes on Wall Street, fearing the worst could come for our economy.

Ever since President Trump ordered a drone airstrike at the Baghdad Airport, killing one of Iran’s top military officials along with at least four other people, the entire world has been watching closely as rumors of retaliation have since escalated. But what does that have to do with gas prices and American retirement funds?

While the global benchmark for crude oil rose above $70 on Monday for the first time in over three months, it’s going to take a couple of weeks for any changes to really be felt when filling your gas tank.

The Brent contract for oil touched a high of $70.74 a barrel, the highest since mid-September, when it briefly spiked over an attack on Saudi crude processing facilities. Stock markets were down as well amid fears of how Iran would fulfill a vow of “harsh retaliation.”

“The market is concerned about the potential for retaliation, and specifically on energy and oil infrastructure in the region,” said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency. “If Iran chose to incapacitate a major facility in the region, it has the technical capacity to do so.”

Still, many analysts say they see little cause for concern about damage to the U.S. economy resulting from the jump in oil prices. Some note that higher energy prices can actually benefit the overall economy because the United States is now a net exporter of petroleum products. And the Federal Reserve's commitment to low interest rates means the Fed is unlikely to raise rates anytime soon to counter any inflationary effects from higher oil prices.

But economists caution that an escalation in the Trump administration’s confrontation with Iran could pose new risks to the economy in the long run.

Fears that Iran could strike back at oil and gas facilities important to the U.S. and its Persian Gulf allies stem from earlier attacks widely attributed to Iran.

The U.S. has blamed Iran for a wave of provocative attacks in the region, including the sabotage of oil tankers and an attack on Saudi Arabia’s oil infrastructure in September that temporarily halved its production. Iran has denied involvement in those attacks.

According to GasBuddy, national gas prices are relatively steady, where here in Massachusetts the average is up by three cents compared to last week, sitting at about $2.58 a gallon.

Analysts noted that American households devote a smaller proportion of their spending to energy bills than in the past. That is in contrast to previous periods, when a surge in oil prices often preceded recessions.

The proportion of their spending that U.S. consumers devote to energy has fallen to a historic low of 2.5%, down from more than 6% in the early 1980s, economists at Credit Suisse noted in a research report.

Though the U.S. economy can better withstand a jump in oil prices than it once could, the global economy is still vulnerable.

“Higher oil prices are still very much a negative for the global economy, and that will reverberate back on us," said Mark Zandi, chief economist at Moody’s Analytics.

Financial Planner Chuck Zodda, who works with Securities America said 2020 might be a volatile year overall for the stock market, but not just because of Iran.

According to Zodda, a bigger impact might be this year’s election. In that case, the effect on the markets will depend on how tight the race is the closer we get to November.

If you’re looking to make a big purchase soon, Zodda says you should make sure that money is in your hands, not in the market.

“So this Is a great opportunity for people to look at their portfolio and figure out if they are invested appropriately if they have an expense into the next year or two that they need to pay for," said Zodda. “That money shouldn’t be in the market right now, use this as an opportunity if you need a new car or a college tuition payment coming up, pull that money out of the market and get it into something safe.”

Sung Won Sohn, economics and business professor at Loyola Marymount University, said that if the current crisis were to escalate into a much bigger confrontation, it would represent a potentially serious threat:

“If the situation does not escalate beyond the current level, i would say this will be a minor hiccup for the economy. But if it becomes a war and the Strait of Hormuz is closed, then we are looking at a major economic problem."

Compared to other methods of attack, targeting energy sites also “doesn't kill a lot of people,” Krane said. “It’s capital-intensive, it’s not people-intensive. It's a safer option in terms of the virulence of reprisal.”

It would still wreak havoc on the global economy, he said, because of the way that oil markets affect other energy-intensive industries such as airlines, shipping and petro-chemicals.

Experts say the effect of a Middle Eastern geopolitical crisis on oil prices isn’t as great as it once was. The U.S. energy industry can ramp up shale oil production in places such as Texas, for example.

“We’re in this new territory where the world oil markets are more dynamic and can tolerate this disruption more than they used to,” said Michael Webber, a mechanical engineering professor at the University of Texas at Austin.

Tensions between the U.S. and Iran have steadily intensified since Trump's decision to withdraw from a 2015 nuclear deal and restore crippling sanctions.

But after the attack on Saudi Arabia's crucial Abqaiq oil processing facility in September, Halff said the “market was able to dismiss it pretty quickly, partly because there was a perception that shale oil was pretty abundant.”

After that incident, the price of oil surged over 14% in a day, but lost those gains over the next two weeks.

Halff said the killing of Iran's top general is different.

“This is not something that can be repaired,” Halff said. “You can repair a facility. You can’t bring somebody back to life. There’s no turning back.”

Most financial planners say it’s never good to overreact with your money and investments, and right now is no different.

“If you’re still looking at retirement 15, 20 years off you don’t necessarily need to be making moves here but you want to make sure that that money is invested somewhere safe and not trying to generate maximum returns,” said Zodda.

The Associated Press contributed to this report

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