The fortunes of war

History tells us that oil price booms fuelled by Middle Eastern conflicts take their toll on global equity markets.

Are there any safe havens in these turbulent days? “Conventional wisdom and the Gulf War experience tells us that when hostilities start, markets rise,” reveals Paul Marsh, professor of finance at London Business School, co-author of the Global Investment Returns Yearbook 2003. The professor’s bank of world equity, bond market and economic data goes back to 1900. His latest figures show the equity market is not a safe place over the next five years. “It all depends on an investor’s horizon and wealth levels. If you need the money for school fees in five years, then stay away from equities.” The risk only becomes manageable over a 20 to 30 year period. LBS data shows equity bear markets during Middle East Wars between 1971 and 1974 coincided with oil price peaks. As PWM goes to press, oil is trading at $33 (E30) a barrel. “America wants to eliminate any dependence on Saudi oil or Gulf oil,” Sheikh Ahmed Zaki al-Yamani, the former Saudi Arabian oil minister, recently told the BBC. America, believes the sheikh, who trebled the oil price in 1973 and was then kidnapped at the 1975 Vienna Opec meeting, has reached a conclusion: “The best thing to do is to occupy Iraq.” But as a result of war, he can see the world oil price going as high as $100. Neptune’s managing director Robin Geffen, one of the UK’s most successful fund managers, does not believe oil will go so high, though a “messy” conflict could disrupt supplies. As a result of this and continuing unrest in Venezuela, his funds are heavily overweight in oil stocks, including ExxonMobil, Total and Lukoil. “Oil and any stocks that pay an income are a good place to be at the moment,” he told PWM.