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Investing.com - The economic and financial impact of the conflict between Israel and Iran will likely be muted unless there is "actual disruption" to the flow of energy supplies, according to analysts at Capital Economics.
Despite the heightened violence between the regional rivals, the effect on major global financial markets has been "relatively limited," the analysts led by Jonas Goltermann argued in a note.
Oil prices have seen some volatility due to in part to increased worries that the violence could spil over into shipping lanes out of the Middle East, particularly the crucial Strait of Hormuz. No disruptions have yet to be reported.
Meanwhile, the main averages on Wall Street ended higher on Monday, while bond yields and currencies were relatively muted, with analysts noting some moderation in fears over the implications of several days of airstrikes between Israel and Iran.
"The lack of further volatility on account of the conflict appears to reflect a view that, as proved the case with other escalations in the region over recent years, this one will not result in significant damage to energy production or transportation infrastructure," the Capital Economics analysts said.
"Ultimately, that is the primary channel through which the conflict could have a major impact on the global economy."
Still, they flagged that the intensification of Middle East tensions comes at a "tricky time" for investors already grappling with murkiness around U.S. trade and fiscal policies. "An unpredicatable environment" has become "even more so," the analysts said.
On Tuesday, Israel’s military said that it had carried out "several extensive strikes" on military targets in western Iran, including on surface-to-surface missile storage sites and launch infrastructure.
A senior Iranian general "in the heart of Tehran" was killed overnight, Israel’s Air Force also claimed. Iran has not yet confirmed the statement.
Meanwhile, the Trump administration is discussing with Iran the possibility of holding talks this week on a potential nuclear deal and an end to the conflict with Israel, Axios has reported.
U.S. stock futures pointed lower as the fighting entered its fifth day.