Oil Price Surge: Israel-Iran Conflict & Stagflation Fears? [2025 Market Analysis]

Morning Financial Quick Analysis: June 16, 2025

Introduction

Investment friends, welcome to the Morning Financial Quick Analysis. It's 8:31 am on Monday, June 16, 2025, Taipei time. Good morning! I'm You Tinghao. Every morning, half an hour before the market opens, we're here to accompany you and analyze international financial news and current affairs changes together.

Impact of Middle East Tensions on the US Stock Market

• The US stock market has experienced significant volatility due to the Middle East war. Israel's air strikes on Iran and Iran's subsequent retaliation have led to a sharp increase in oil prices, and gold prices have also approached a record high.

• The Strait of Hormuz's crude oil transportation still faces high geopolitical risks, and the market is concerned whether the conflict will continue to escalate and expand. This may also cause a new variable in the Federal Reserve's future interest rate cut pace.

• The stock market reaction on Friday was not as large as expected. The VIX index only rose to around 20, the Nasdaq fell by 0.6%, and the Dow Jones' weekly decline was only 1.3%. The panic index has fallen by about 63% from June 6th to now, indicating that the market's panic sentiment has almost disappeared.

Background of the Israel-Iran Conflict

• The conflict can be traced back to the beginning of this month when the International Atomic Energy Agency (IAEA) released a report pointing out that Iran had no significant nuclear activities at the declared sites.

• Iran could not provide a reasonable explanation for the artificial uranium particles found by the IAEA. According to the assessment, Iran has enough nuclear fuel reserves to manufacture 10 nuclear warheads.

• The US-Iran nuclear negotiations have reached a deadlock. The US requires Iran to completely stop uranium enrichment, while Iran insists on retaining the domestic enrichment permission, which is its red line of sovereignty.

• On June 11th, the US, the UK, France, and Germany accused Iran of violating the Nuclear Non-Proliferation Treaty at the IAEA, and Israel took preventive strikes in advance.

Military Comparison between Israel and Iran

• Iran has an advantage in terms of troops and equipment quantity, but is far inferior to Israel in terms of military expenditure and military modernization. Israel's defense budget is 19.2 billion US dollars, three times that of Iran's 7.4 billion US dollars, and it has 39 advanced F-35 fighter jets.

• Iran mainly relies on old-fashioned F4, F5, or F14 fighter jets. In addition, Israel's attack helicopter force includes 20 Apache helicopters, while Iran mainly relies on the old-fashioned AH-1 Cobra helicopter.

• In terms of ground combat power, Iran has 1,593 tanks, 2,030 towed guns, and 2,000 small warships, while Israel only has 400 tanks. However, there are countries such as Jordan and Syria between Iran and Israel, so it is unlikely for Iran to attack Israel by land.

Israel's Ability to Destroy Iran's Nuclear Facilities

• Israel may need more US support to completely destroy Iran's nuclear facilities. After the first wave of attacks, it is difficult to say whether Israel has completely eliminated the possibility of Iran's nuclear facilities' recovery.

• Many of Iran's nuclear facilities, such as Fordow, are hidden in the mountains and protected by multiple layers of reinforced concrete. Israel's existing bombs, such as GBU-28 or BLU-109, may not be able to completely destroy them.

• To destroy these facilities, Israel may need to request the US to provide B2 bombers and heavy-duty armor-piercing bombs.

Impact of the Conflict on the Global Energy Market

• The conflict has increased the global threat to the energy market. Iran's Revolutionary Guards have threatened to consider blocking the Strait of Hormuz, which carries about one-third of the world's oil transportation.

• The market is also concerned about whether Iran has the ability to completely block the Strait of Hormuz. On Saturday, Israel air - struck two natural gas facilities in Iran, and Iran launched missiles to attack Israel's oil refineries.

• The price of Brent crude oil has risen from $65 to $75 in a short period, and the price of West Texas Intermediate (WTI) crude oil has also increased significantly. This will have a significant impact on the inflation rate in June and July.

Analysis of Oil Price Trends and Inflation Risks

• The increase in oil prices may not necessarily lead to a significant increase in inflation in the United States. Most of the oil produced in the Middle East is exported to East Asia, Southeast Asia, and India.

• The United States has sufficient shale oil and WTI crude oil supply. China's domestic deflationary situation may also limit the impact of rising oil prices on inflation.

• The long-term trend of oil prices has been declining since 2022. The recent increase in oil prices may be mainly due to psychological factors. The copper - oil ratio indicates that the global economy is still in an expansionary stage, and there is no significant risk of stagflation in the short term.

Impact of the Conflict on the US Federal Reserve's Interest Rate Policy

• The conflict may delay the Federal Reserve's interest rate cut plan. The Federal Reserve's preferred inflation indicator, PCE, has an annualized rate of only 1.3% in the past three months, and it has almost achieved the goal of price stability.

• However, the geopolitical tensions and the increase in oil prices may cause the inflation rate to rise again. The market is also concerned about whether the tariff - induced inflation has been reflected in the May inflation data.

Market Reaction and Investment Strategy

• The stock market has shown a certain degree of decline due to the conflict, but the overall decline is not significant. The market is more concerned about the impact of inflation on the Federal Reserve's interest rate policy.

• For long-term investors, geopolitical tensions may provide a better investment opportunity. The historical data shows that the impact of geopolitical conflicts on the US stock market is usually short-lived.

• In addition to the stock market, the price of gold has also risen significantly due to the risk aversion sentiment. Gold has become the second-largest central bank reserve asset in the world, surpassing the euro.

Focus on Tesla's Robotaxi Plan

• Tesla's robotaxi plan, which was originally scheduled to be announced on June 12th, has been postponed to June 22nd. The company will launch a driverless taxi service in Austin, Texas on that day.

• The plan has received strong opposition from local communities. Some people believe that Tesla's fully - autonomous driving technology is not mature enough, and the test program lacks transparency.

• Tesla's pure - vision and AI - training lightweight solution has a cost advantage. If the robotaxi plan is successful, it will have a significant impact on the global autonomous driving market.

Taiwan Stock Market and Upcoming Events

• The Taiwan stock market fell slightly on September 2nd, with the Taiwan Stock Exchange Index down 119 points to close at 21,992 points. Taiwan Semiconductor Manufacturing Company (TSMC) closed at NT$1,020.

• This week, we will focus on the impact of China's smuggling of hardware to avoid US sanctions on the Taiwanese semiconductor industry. The Taiwan government has listed Huawei and SMIC on the blacklist to strengthen semiconductor technology protection.

• We will also pay attention to the European Central Bank's interest rate decision and the Federal Reserve's FOMC meeting. In addition, the US will release a series of economic data, including retail sales and industrial production data for May.

Conclusion

• The Middle East conflict has had a certain impact on the global financial market, but the overall impact is still within a controllable range.

• The market is more concerned about the impact of inflation on the Federal Reserve's interest rate policy. For investors, it is important to maintain a rational investment attitude and make investment decisions based on their own risk tolerance and investment goals.

• If you like our program, remember to subscribe, like, and share. We will meet again at 8:30 am tomorrow morning for the Morning Financial Quick Analysis. I wish all investment friends a smooth market-watching and a happy trading!