Us Missile Attack On Iraq Sends Global Markets Into A Tizzy

The oil market was the worst hit as October crude prices leapt to a post-Gulf war high of $ 23.95 on the New York Mercantile Exchange which opened after Labor Day holiday. Oil prices are now at their highest levels since October 1990 when Iraq invaded Kuwait.

Although prices are still below the record high of $40.95 a barrel hit during the Iraqi occupation of Kuwait in 1990, they are $6 higher than at this time last year.

Analysts in London said the US strike jolted the market at a time when western oil stocks have touched their lowest levels in years. Earlier, the London oil market was up 63 cents at $22.60 a barrel. In Singapore, Brent blend was selling for $23.50.

 

Gold and the dollar rose while stocks and bonds fell, although price movements were not dramatic. The arms-length strike pushed gold up about 50 cents an ounce and the dollar up around half a pfennig, but in later trade all were tending to drift back down. The dollar ended European trading around 109.25 yen and 1.4835 marks, below earlier highs of 109.45 and 1.4912.

Gold prices gained around 60 cents an ounce to $387.50 in early European trade but then turned round to show little net change on the day.

"What we have seen are the usual knee-jerk responses you would expect in terms of a stronger dollar and stronger oil prices but not dramatically so on either front," said John Shepperd, Chief Economist at Yama-ichi International.

The US missile attack also ripped into Indian share values and exposed the country's vulnerability to higher oil prices and potential rupee weakness. The 30-scrip sensitive index of the Bombay stock exchange slumped 78.30 points at 3484.68. The NSE-50 fell by 14 points.

The market had in fact opened strong at 3544.03 and touched 3580 by mid-session, welcoming the crackdown by Sebi on errant brokers for illegal badla and short sales. The selling pressure came later from both local operators and through FIIs in select counters.

The US raid fuelled fears of a Gulf War-type crisis. While the Indian markets are not directly affected by the current uncertainty, selling pressure came from local operators midway through the trading session.

Foreign institutional investors sold in select counters but the direction would be to hold on to current investments. According to Biyani Securities, a BSE brokerage, FIIs also purchased at some counters.

"If the crisis deepens, the sensex could lose 400-500 points very sharply and a level of 3000 could be touched," brokers added. Trading volumes at the major bourses was up sharply with the net traded value at the NSE crossing the Rs 1,000 crore mark, touching Rs 1,243.85 crore.

In London, the market for Indian GDRs was also subdued and prices tracked trends set in Bombay. Says Deepak Lalwani, Head of India Desk at Astaire & Partners: "The US attack on Iraq has unsettled the market. Institutional investors have chosen to stay on the sidelines.

There was not much of a reaction of the US attack on Iraq in the domestic forex markets yesterday. The rupee declined by a small margin on account of buying by most banks and the Reserve Bank. The rupee tumbled to a low of Rs 35.72 at the close yesterday. For most of last week, it had been trading at Rs 35.66/67.

The forward markets were also fairly stable yesterday on the short term although there was a slight decline in the six-month premia levels on the dollar.

However, dealers saw little possibility of this happening as the rupee-dollar rate is trade-driven while currencies all over the world are asset-driven. This was one of the main reasons for the rupee-dollar rates remaining steady.