As long as the turmoil is contained within Iran’s borders, global markets shouldn’t falter, Elliott said. Oil prices could rise, and they have climbed in recent days to as high as $71, but it’s in no one’s interest to see oil prices jump to $100 a barrel or more, he said. If that happens, then U.S. drilling will increase, supply will climb and, eventually, oil prices will plummet.
The real danger, said Elliott, is that Trump’s Iran exit will spark a war in the Middle East. Israel may be taking America’s actions as a sign that it can now attack Iranian bases in Syria, and it did strike several Iranian targets in the country last night after rockets were fired into Israel from Syria.
If tensions escalate, then Israel, Syria, Lebanon, Iran and maybe even Saudi Arabia — which would likely come to Israel’s defense — could find themselves engaged in battle. That would have a negative impact on economies around the world. “It would raise the price of gold, the dollar and oil and fears of a war spreading could take hold,” Elliott said. “If Russia and Turkey get involved then things could get nasty.”
As of now, markets have not reacted negatively to the deal pullout. The S&P 500 is up about 1.8 percent since the May 8 announcement, while the CBOE Volatility Index has fallen from 16 two days ago to about 13.5 today. That suggests that investors think Iran’s economy won’t suffer more than it already has, Elliott said.
But it’s still early days.
“We’ll see the full effects of this in the winter, so we need to wait,” he said. “Unless Trump gets heavy on European allies, then I think Iran can see this through. But if Israel takes it as a blessing that it’s time to hit Iran, then we could see war begin.”
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