(News Bulletin 247) – Following the Hamas terrorist attack against the Hebrew state, oil is rising, thus boosting the prices of Totalenergies, Vallourec and even Schlumberger. The renewed geopolitical tensions are also driving up defense stocks, such as Thales and Dassault Aviation.

The terrorist attack that hit Israel this weekend has brought geopolitical risk in the Middle East back to the forefront.

This Hamas attack, the largest in scale in decades, triggered a response in the Gaza Strip and made the market fear a risk of the conflict extending to other countries in the region, including those producing oil.

The consequence is that black gold prices are increasing significantly this Monday. The December contract on Brent from the North Sea advanced 2.6% to 86.81 dollars per barrel, while that of November on WTI listed in New York gained 3.2% to 85.37 dollars.

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A risk premium for oil

“For the markets, this increase in violence, with the rhetoric of support for the attack by the Iranian authorities, can only fuel fears about oil supplies, as has unfortunately been the case historically. It is too early to draw conclusions, but in the very short term, it is likely that a premium will be attached to the price of oil, causing it to rise again. Bad news for the world economy”, judges Sebastian Paris Horvitz of LBPAM.

“With the Middle East powder keg igniting again, oil prices will rise in line with heightened geopolitical risks. Expect continued turbulence in crude oil prices as rate-related recession fears ease room for the worrying escalation of terrorism in the Middle East,” explains Stephen Innes of Spi Asset Management.

This rise in oil prices unsurprisingly boosts the shares of oil companies, whose income depends largely on barrel market prices, and oil services groups. Totalenergies is thus up 1.4% at 10 a.m., while Vallourec is up 3.7% and Schlumberger is up 3.5%. In London, BP advances 2% and Royal Dutch Shell gains 1.6%.

Thales and Dassault Aviation driven by geopolitical risk

Conversely, airlines, sensitive to the rise in oil prices given that fuel remains their primary expenditure item, are declining. Air France-KLM thus lost 4.2% on the Paris Stock Exchange, the second largest decline in the SBF 120.

Apart from variations linked to the price of black gold, market sentiment is influenced by the increase in geopolitical risk which is driving defense companies up on the stock market. Thales thus gained 4.5%, the strongest increase in the CAC 40, while Dassault Aviation advanced 4.7%. In London, BAE Systems gained 4.8% while in Frankfurt, Rheinmetall AG, which supplies armored vehicles to the German army, gained 6.3%.

“This is the classic market reaction to the rise in geopolitical risk: we look for safe havens, therefore the defense sector, which is carried by this risk. And this was quite predictable given that this sector has suffered these recent weeks. But this remains market sentiment, because these tensions do not bode well for new orders,” judges an analyst specializing in the industry.