In a significant military escalation, the Israel Defense Forces (IDF) confirmed the death of Hezbollah leader Hassan Nasrallah in an airstrike on the outskirts of Beirut on Friday. Hezbollah acknowledged his death in a statement issued Saturday.
Nasrallah’s death may represent a major geopolitical upset for Israel, given Hezbollah’s alliance with Iran and its arsenal of approximately 150,000 rockets. The group has already deployed some of these armaments against northern Israel following Hamas’ unexpected attack on October 7, 2023. However, analysts suggest that a full-scale conflict with Hezbollah could be far more damaging. The potential for Iran to incite Hezbollah into action has been a critical factor in maintaining military equilibrium in the region.
Despite these significant developments, global markets appeared unfazed. Oil prices rose by half a percent on Friday but remain 24% below their recent peak in September. Geopolitical strategist Marko Papic noted that markets have become increasingly desensitized to geopolitical risks, a trend that has persisted despite ongoing violence in Gaza and Lebanon.
The airstrike targeted Hezbollah’s command-and-control capabilities and followed weeks of efforts to eliminate senior militant leaders. Although Hezbollah may struggle to respond immediately, the majority of its forces and weaponry remain intact, which could lead to a more measured approach in their retaliation.
Iran’s Supreme Leader Ayatollah Ali Khamenei stated on X that “Lebanon will make the transgressing, malicious enemy regret its actions,” but did not clarify whether Iran would retaliate directly. Reports suggest Khamenei has been moved to a secure location, leaving questions about Israel’s future military strategy. Options could include ground assaults in Lebanon or further covert operations against Iran.
Experts highlight that the current stability of global energy markets may mitigate significant price fluctuations in oil. Matt Gertken, chief strategist at BCA Research, remarked, “At this stage, a major market reaction would require either a significant supply shock to oil production or distribution, a considerable expansion of conflict into major oil-producing regions, or a notable military-political event suggesting a broader conventional war that could threaten oil supplies.”
Disruptions could potentially arise from attacks on oil shipments in critical areas like the Strait of Hormuz or on production facilities in Saudi Arabia. Although the U.S. plans to conclude its counterterrorism mission in Iraq, U.S. forces remain in the region, potentially exposed to increased threats. Iran and its allies, including the Houthi forces in Yemen, have a history of conducting such assaults and may resume operations.
Despite the heightened tensions, investors appear to be taking a wait-and-see approach. The ratings agency Moody’s downgraded Israel’s credit rating from A2 to Baa1, citing geopolitical risks. However, the relatively calm market reaction suggests that stakeholders may view these developments as manageable, at least for now. As the situation evolves, the focus will remain on how both Israel and Hezbollah navigate this precarious landscape without triggering broader market disruptions.
