The Israel–Hamas war and the implications for real assets

The Israel–Hamas war and the implications for real assets

7 minute read

October 2023


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Cohen & Steers is closely monitoring developments in the Middle East following the horrific terrorist attack on Israel. We offer a concise examination of the potential impact on real assets and the macroeconomic environment.

What happened?

The Hamas terrorist organization launched an unprecedented (land, sea and air) attack against Israel on October 7. Israeli forces have formally declared war on Hamas, launching an aggressive counter offensive and ordering a total siege of Gaza.

We are saddened and troubled by the violence and loss of life precipitated by the terrorist attack on Israel. The attacks are tragic and abhorrent. Terrorist attacks violate our most fundamental values and beliefs. Our thoughts are with those affected by these events.

The focus on markets (and real assets in particular) has been on the energy sector with a secondary focus on the macroeconomic environment. While oil fundamentals have remained unaffected at the moment, a war in the Middle East significantly increases the risk of supply disruptions in an already tight oil market. We believe there is a risk of further escalation beyond Israel’s borders, potentially involving the U.S., Iran and other regional powers. It is our opinion that these events will increase volatility and likely put a floor under energy commodity prices and energy company valuations.

Cohen & Steers is closely monitoring these developments, and we have positioned our strategies accordingly based on the real-time analysis of our investment professionals across the globe.

We are saddened and troubled by the violence and loss of life precipitated by the terrorist attack on Israel.

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Significance for commodities

We expect the oil market to start to price increased geopolitical risk as uncertainty affects what was already a tight supply and demand market. At the same time, there are several specific developments that may follow, including:

  • We believe it will be difficult for the Biden administration to maintain a soft stance on Iran oil sanctions. Therefore, lower Iran production/exports is a probable near-term outcome.
  • There has been speculation in recent weeks of a potential U.S.–Saudi deal that could trigger a tapering of Saudi’s 1 million barrels per day unilateral production cut. This was contingent on the normalization of Saudi–Israel relations, which we believe will be put on hold given recent events.
  • If the conflict escalates into a larger war between Israel and Iran, the Strait of Hormuz, a key artery of petroleum and liquefied natural gas (LNG) trade, could be at risk. Approximately 20% of the global petroleum liquids consumed and 20% of LNG exports are transported through the Strait. Other outlets for Persian Gulf energy exports are very limited.

Macroeconomic perspective

  • A heightened geopolitical risk premium in energy markets may provide a floor to oil prices, which would filter into headline inflation and corporate input price pressure.
  • Headline inflation is already above central bank inflation targets in most developed markets; any upward pressure from supply-side or geopolitical impacts will make inflation stabilization at 2.0%—which was already going to be very difficult to achieve—even more challenging. Consequently, interest rates may remain “higher for longer.”
  • The U.S. dollar and other “safe-haven” currencies may see “flight-to-safety” investor flows amid heightened uncertainty.
  • Politically, any further U.S.–Iran progress toward a nuclear deal (JCPOA) is very likely off the table, and a revival of support for additional defense/ munitions spending or border security may reassert itself.

Impact on real assets

We believe markets will start to price in increased geopolitical risk into oil prices as uncertainty adds to what was already a tight market. At the same time, there are several specific developments that further add to pricing pressure, including:

  • Commodities
    • Petroleum: The war complicates what is an already tight market for oil. The recent events could put a floor on oil prices with significant risk to the upside should the conflict escalate beyond Israel’s border.
    • Natural gas: U.S. natural gas has shown little reaction to developments in Israel. However, Israel asked Chevron to halt operations at the Tamar gas field (off the Israeli coast) for safety reasons. This development has contributed to a spike in European LNG (TTF) and U.K. natural gas futures.
    • Precious metals: Elevated geopolitical risks typically result in a flight to safety. We have seen this occur over the last few trading days. However, the war raises the prospect of higher oil prices, which could add to inflation risks.
  • Natural resource equities: Modest impact. Energy companies have generally rallied since news of the initial attack broke, given the risk premia lift in energy broadly and what appears to be an influx of inflows into energy exchange-traded funds (ETFs).
  • Global listed infrastructure: No significant impact. There are no Israeli- domiciled companies in the FTSE Global Core Infrastructure benchmark.
  • Global real estate: No direct impact. Israel is 0.3% of the FTSE EPRA Nareit Developed Real Estate Index.


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