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Middle East War Updates: Iran-backed Houthis strike Israel as the conflict expands

Here’s a brief recap of important developments that occurred over the weekend as the Middle East war enters its fifth week, with no signs of any truce.

  • Iran-backed militant group in Yemen, Houthis, entered the month-old war in the Middle East on Saturday, claiming two missile launches at Israel.
  • The Houthis' entry could further hurt global shipping if they again target vessels in the Bab el-Mandeb Strait off the Red Sea, through which about 12% of the world's trade typically passes.
  • Israel’s Prime Minister Benjamin Netanyahu announced an expansion of Israel’s invasion of southern Lebanon as his forces target Hezbollah.
  • Islamabad, Pakistan, hosted diplomatic talks between the foreign ministers of Egypt, Turkey and Saudi Arabia on Sunday.
  • Pakistani Foreign Minister Ishaq Dar said that “Pakistan is very happy that both Iran and the US have expressed their confidence in Pakistan’s facilitation” of the talks, which he said will happen in the “coming days”.
  • The Israeli military continued carrying out extensive strikes on what it called targets belonging to the Iranian regime across Tehran.
  • Iran’s Energy Minister confirmed Israeli attacks on “electricity infrastructure” in Tehran, the wider Tehran Province and Alborz Province, which caused power outages.
  • The International Atomic Energy Agency (IAEA) confirmed that Iran’s heavy-water production plant is no longer operational at Khondab, which Israel attacked on 27 March.
  • Citing US officials, the Washington Post reported that the Pentagon is preparing for weeks of limited ground operations in Iran, potentially including raids on Kharg Island and coastal sites near the Strait of Hormuz.
  • Iran’s parliament speaker Mohammad Bagher Ghalibaf said Iranian forces “are waiting for the arrival of American troops on the ground to set them on fire”.
  • The US dispatched thousands of Marines to the Middle East in the month-old war. The first of two contingents arrived on Friday on an amphibious assault ship, the US military said on Saturday.
  • The US is allowing a Russian crude tanker to reach Cuba, marking a targeted easing of its de facto oil blockade, per The New York Times.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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