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CNN Live At Daybreak

Markets Would Be Affected by a Gulf War

Aired September 02, 2002 - 05:18   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

CATHERINE CALLAWAY, CNN ANCHOR: Many government officials are considering the political and diplomatic impact of a U.S. war against Iraq. But there is a financial impact to consider, as well.
Our Maggie Lake looks at how markets are reacting to the possibility of another Gulf War.

(BEGIN VIDEOTAPE)

MAGGIE LAKE, CNN CORRESPONDENT (voice-over): Tough talk from the White House and media reports that the U.S. is considering an attack against Iraq has put Wall Street on red alert. BERNADETTE MURPHY, KIMELMAN & BAIRD: The discussion or anticipation of a conflict introduces that uncertainty which sort of is a negative for the market.

LAKE: Crude oil prices have already jumped on the threat of war and if it becomes clear an attack is imminent, they could spike even higher.

PHIL FLYNN, ENERGY ANALYST, ALARON.COM: There is always a psychological impact whenever there is an attack or a war in the Middle East. And traders will speculate that if the war expands, for example, that it could disrupt oil supplies. Or, for example, let's say Saddam Hussein blows up a couple of oil fields in Kuwait or Saudi Arabia, there's always that fear.

LAKE: The fear is that businesses forced to spend more on oil will cut back on other areas. Macroeconomic Advisers, a St. Louis forecasting firm, estimates that every $10 increase in the price of a barrel of oil shaves about a half a percent off growth.

But there could be a silver lining.

JOSH FEINMAN, DEUTSCHE BANK ASSET MANAGEMENT: But if the military operation is fairly quick and successful, then I think in pretty short order you can get a reversal of that and the financial markets could actually rally on the signs that the military operations were successful. And oil prices actually could come down sharply if the perception grew that Iraq was going to become a major producer and supplier of oil to the world again.

LAKE: But that is a big if.

(on camera): The other possibility is a prolonged ground war. If that were to happen, most economists feel the U.S. could fall back into recession, with stocks following the economy into the red. Maggie Lake, CNN, New York.

(END VIDEOTAPE)

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