A leading economist says US markets may be underestimating the risks of a major oil supply disruption in the Middle East.
In a new CNBC interview, Robin Brooks of the Brookings Institution says escalating tensions in the region are putting a significant portion of the world’s oil supply at risk.
According to Brooks, one false move in the Middle East could have a catastrophic impact.
“This is a massive supply disruption with 20% of global supply now in jeopardy. The big question is the risk that some kind of rocket or some kind of damage is done to an oil tanker if they try passage. I think that is really kind of the nightmare scenario.”
Despite those risks, Brooks says US financial markets appear largely unfazed so far.
“The equity market clearly is not pricing anything disastrous at all. The S&P is down by what, 1%-1.5%? I mean really not much.”
According to Brooks, some investors may be taking comfort in the United States’ position as a small net exporter of oil.
“The United States actually imports oil. That doesn’t help the United States. Gas prices at the pump are going up significantly and will hurt the consumer. At least the United States, unlike many other parts of the world, has oil extraction and oil producers.”
Still, Brooks warns that the broader US stock market may be ignoring the potential severity of the situation.
“I think the S&P 500, the US equity market, is being complacent.”
At time of publishing, the S&P 500 is trading at 6,740.
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