Why Wall Street isn't betting on a wider war in the Middle East

Summary

Marketplace Morning Report: Why Wall Street Isn't Betting on a Wider War in the Middle East
Release Date: June 24, 2025
Host: David Brancaccio

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Overview

In this episode of the Marketplace Morning Report, David Brancaccio delves into the current Middle Eastern conflict, specifically focusing on the Israel-Iran tensions, and explores why Wall Street remains unperturbed by the potential escalation into a wider war. The discussion features insights from political risk expert Ian Bremmer of Eurasia Group and touches upon the implications for global markets, oil prices, and NATO's strategic adjustments.

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Current State of the Middle East Conflict

David Brancaccio opens the discussion by outlining the fluid situation in the Israel-Iran war. He notes that Israel has accused Iran of breaching a ceasefire announced by President Trump and emphasizes Israel's commitment to a firm retaliation stance.

“[...] crude oil is off its lows from overnight, the prices still down 2.7%, $66.65 a barrel and stock index futures are at the moment at least pointing to a strong open on Wall Street.”
(01:33)

Despite these tensions, Wall Street remains relatively calm, with stock index futures indicating positive movements. Nasdaq futures are up by 1%, and S&P futures are up by 0.8%.

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Wall Street's Calm Amidst Conflict

Ian Bremmer provides his perspective on why financial markets are not exhibiting significant concern over the potential for a wider war.

“Because of the three belligerents that are fighting right now, the Iranians are actually the most risk-averse. [...] As long as their regime is stable and solid, and for now at least that appears to be the case, they're very cautious not to precipitate further escalation.”
(02:37)

He explains that Iran, being the most risk-averse among the current belligerents, understands its limitations in deterring the U.S. and Israel. This restraint contributes to the markets' calm demeanor.

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Role of China and Oil Supply Dynamics

David Brancaccio probes further into the geopolitical dynamics by asking if China plays a crucial role in preventing the conflict from expanding.

“Yeah, they do, but it's not that. It's that the Iranians aren't suicidal. [...] That's not the reason the Iranians are being cautious here.”
(03:19)

Ian Bremmer clarifies that while China is a significant purchaser of Iranian oil, the primary reason for Iran's caution is their non-aggressive stance rather than Chinese influence. He highlights that maintaining steady oil exports is vital for Iran's economy and regional stability.

“Demand is down and supply is high. [...] There is not a lot of it that's preventing oil from being produced and distributed.”
(04:12)

The global oil market dynamics, marked by reduced demand and high supply, have subdued oil prices despite geopolitical risks.

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Implications for Global Markets and Consumer Confidence

David Brancaccio shifts the focus to broader economic indicators, noting that oil prices remain subdued and stock markets are performing well globally. He mentions that the U.S. Federal Reserve chair is set to assess the economy for Congress, with implications for consumer behavior and confidence.

“After President Trump paused his threatened tariffs in May, consumer confidence rebounded strongly but is still below levels at the end of 2024.”
(05:54)

Ian Bremmer connects consumer confidence trends to the political landscape, highlighting the impact of tariffs and economic policies on spending behaviors.

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NATO Summit and Defense Spending

The episode also covers the ongoing NATO summit in the Netherlands, where world leaders are focusing on increased defense spending. Zachary Paikin from the Quincy Institute and Anka Agathi of the Rand Corporation provide insights into the motivations and expectations behind NATO's decision to raise defense budgets from 2% to 5% of GDP by 2035.

“The NATO members are giving themselves until about 2035 to reach the new 5% target, with 3.5% going to new equipment and the remaining 1.5% to defense-related investments like cybersecurity and infrastructure.”
(08:01)

Mark Cancian discusses the strategic shift for NATO members to either develop their own defense industries or continue purchasing equipment from global suppliers, emphasizing the U.S.'s traditional role as a major defense supplier.

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Conclusion

David Brancaccio wraps up the episode by underscoring the delicate balance Wall Street maintains amidst geopolitical tensions. The combination of cautious geopolitical actors, steady oil supply despite conflicts, and robust stock market performance contributes to a stable economic outlook, even in the face of potential wider wars in the Middle East.

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Notable Quotes

• Ian Bremmer:
  “Because of the three belligerents that are fighting right now, the Iranians are actually the most risk-averse.”
  (02:37)

• Ian Bremmer:
  “Demand is down and supply is high. [...] There is not a lot of it that's preventing oil from being produced and distributed.”
  (04:12)

• Zachary Paikin:
  “We’re trying to build their own capabilities so that they could provide for their own security with maybe the United States as a backup.”
  (08:21)

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Key Takeaways

• Market Stability: Despite ongoing Middle Eastern tensions, Wall Street remains largely calm due to Iran's risk-averse stance and stable regime.
• Oil Dynamics: High supply and reduced demand in the global oil market help keep prices stable, mitigating fears of significant economic disruptions.
• NATO's Strategic Shift: Increased defense spending by NATO members reflects both external pressures and internal strategic recalibrations amid global security concerns.
• Consumer Confidence: Economic policies and geopolitical events continue to influence consumer behavior, with recent trends showing a rebound in confidence post-tariff pauses.

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This comprehensive analysis provides listeners with a nuanced understanding of why Wall Street isn't currently wagering on an expanded Middle Eastern conflict, highlighting the interplay between geopolitical stability, market dynamics, and strategic defense initiatives.

Transcript

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[David Brancaccio]

Why Wall street thinks the Middle east conflict will not become a wider war. I'm David Brancaccio in Los Angeles. As you've been hearing, the situation in the Israel Iran war is fluid, with Israel now accusing Iran of violating a ceasefire that President Trump had announced late yesterday. Israel is vowing firm retaliation Now Players in financial markets continue to take a wait and see position. Although crude oil is off its lows from overnight, the prices still down 2.7%, 66,65 a barrel and stock index futures are at the moment at least pointing to a strong open on Wall Street. Nasdaq futures are up 1% S&P futures are up 8/10%. I spoke to political risk expert Ian Bremmer before Trump asserted the war was over and indications that it is not. Bremmer is founder and president of Eurasia Group. I started with this question. Why, oh, why are financial markets relatively calm in the face of, I'll say it, war.

[Ian Bremmer]

Because of the three belligerents that are fighting right now, the Iranians are actually the most risk averse. And it's because, as Trump says, they don't have the cards. They understand that they can't deter the Americans and the Israelis and there's very little they can do to damage the Americans and the Israelis. And that means that as long as their regime is stable and solid, and for now at least that appears to be the case, they're very cautious not to precipitate further escalation.

[David Brancaccio]

Very cautious. Do you think the Chinese have a key role in keeping it that way? Our friends in China get a lot of oil from Iran.

[Ian Bremmer]

Yeah, they do, but it's not that. It's that the Iranians aren't suicidal. So, I mean, so far at least no one has struck the Iranian export facilities at Cargill island, which means they're able to continue to get their oil out. That will stop the moment that the Iranians try to shut down the Straits of Hormuz. The Iranians will find themselves at war with the Americans and the Gulf states if they engage in strikes directly against Gulf energy facilities. So you're completely right, David. The Chinese do not want this war to expand and they certainly don't want disruptions to oil. But that's not the reason the Iranians are being cautious here.

[David Brancaccio]

Yeah, and also we have to remind ourselves of the global economics of crude oil these days. Generally, demand is down, which keeps the edge off prices anyway.

[Ian Bremmer]

Demand is down and supply is high. So much so that the American frackers have been reducing some of their aspirations for expanded drilling. They're not seeing adequate demand given the price point for their product. And even though there's plenty of geopolitical risk out there globally, there's not a lot of it that's preventing oil from being produced and distributed.

[David Brancaccio]

Ian Bremmer's Eurasia Group advises corporations and governments on political risk. So oil down, stocks up. And the 100 share index in London is up 3. 10%. Germany up 1.8%. The chair of the US Federal Reserve begins two days of assessing the economy for Congress today. Middle east tariffs on or off. Will we have a job? As the year goes on, this all plays into whether US Consumers will buy or wait, which will be wrapped up into a June reading. This morning on Consumer Confidence Marketplace's Mitchell Hartman has this preview After a post.

[Ian Bremmer]

Election bump, consumer confidence tanked in early 2025 with President Trump's threatened tariffs and worries they'd spark a return of higher inflation. At the same time, consumers went on a mini spending spree in the early spring, buying up anything they could get their hands on that might get more expensive soon. That was doable for middle and upper income households, says Denny Cohen Hemsey at Morning Consult.

[Zoe Saldana]

But lower income households are a lot more stressed and after April they did pull down their spending quite a bit. There is slowing labor environment and there is a lot of economic uncertainty.

[Ian Bremmer]

After President Trump paused his threatened tariffs in May, consumer confidence rebounded strongly but is still below levels at the end of 2024. I'm Mitchell Hartman for Market.

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[David Brancaccio]

World leaders are gathering today in the Netherlands for the NATO summit with defense spending front and center. Marketplace's Kimberly Adams reports this week.

[Zoe Saldana]

NATO allies are set to agree to boost the amount members spend on their domestic armed forces from 2% of GDP to 5% of GDP. We're talking about hundreds of billions of dollars. I mean, it's a lot of money. Zachary Paikin is a research fellow at the Quincy Institute for Responsible Statecraft. And while President Trump has famously berated NATO members over defense spending, US Presidents dating back to Barack Obama have been urging Europeans to spend more on defense. You know, it looks like finally they're beginning to take that seriously now. So US Pressure is one reason for the boost in spending. And as a result, of course, of Russia's war in 2022 and full scale invasion of Ukraine, we've seen a significant increase in defense investment. Anka Agathi is a defense policy analyst at the Rand Corporation. As of last year, 23 out of 32 allies were spending 2%. And I believe this year in 2025, all 32 will be spending minimum 2%. The NATO members are giving themselves until about 2035 to reach the new 5% target, with 3.5% going to new equipment and the remaining 1.5% to defense related investments like cybersecurity and infrastructure. Mark Cancian is a senior advisor at the center for International and Strategic Studies. They're trying to build their own capabilities so that they could provide for their own security with maybe the United States as a backup. Member countries will have to decide whether they want to focus on developing their own defense industries or just buy more equipment and weapons on the global market. The United States has been a major.

[Ian Bremmer]

Supplier for decades, but also more recently.

[Zoe Saldana]

You see countries like Brazil, South Korea is moving very aggressively. President Trump has said the new spending target won't apply to the US which spends more on its military than the next nine countries combined. In Washington, I'm Kimberly Adams for Marketplace.

[David Brancaccio]

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