(Photo: Reuters)
The war between the US and Iran is in its fifth month, and last week it escalated from military exchanges into something more dangerous for investors: the use of the world's energy arteries as a weapon. Brent crude has broken above $100 per barrel, its highest in two months, and has risen 40% since the start of July.Everyone wants to know when the war will end, but the more useful question for a portfolio is whether the cost of fighting on is high enough to make either side back down. So far, the answer is no.
At the heart of this conflict is not only Iran's nuclear programme, but also the right to levy permanent transit tolls for the Strait of Hormuz, through which roughly one-fifth of the world's oil moves.
For Iran, this means both enormous revenue and long-term bargaining power. For the US, this position is unacceptable.
However, bombing alone cannot reopen the strait. A former US general estimated a ground operation would require as many as 600,000 troops and take about a year, which is considered politically implausible.
