BlackRock President Kapito warns investors underestimate the risk of war with Iran

BlackRock President Rob Kapito stated that investors may be underestimating the risks brought by the Iran war. Even if the conflict ends quickly, these risks could pressure economic growth and push up inflation.

On Thursday, at the Asia-Pacific Financial and Innovation Seminar in Melbourne, Kapito warned that even a swift end to the war could impact economic growth by up to two percentage points, with inflation potentially rising by a similar margin.

Even if “we announce the end of the war tomorrow,” oil prices could still surge to $150 per barrel, as disrupted supply chains need time to return to full capacity.

“If this chaos lasts a week, six months, or even a year, what does it mean for the companies I hold?” he said. “My biggest concern is that people are not taking this seriously; they are just blindly assuming” optimistic outcomes.

At the same event, Jim Zelter, President of Apollo Global Management, also warned that prolonged conflict would increase the risk of a recession in the U.S. and threaten the credit cycle.

These warnings highlight a growing concern that markets are overly complacent about the economic impact of the conflict, especially as the risks of long-term disruptions to energy and shipping, and their ripple effects on global supply chains, are not fully accounted for.

Kapito noted that in past conflicts, investors would buy short-term U.S. Treasuries, gold, and short the stock market. Currently, market reactions to the war are inconsistent; stocks have only fallen slightly, while gold and Treasuries have declined.

Zelter said that American consumers, who have been the backbone of the economy in recent years, are now showing signs of strain. He mentioned that consumer confidence has continued to weaken in the first two months of this year, and rising oil prices will further burden their wallets.

“This is not just an interest rate shock; it’s a blow to consumer confidence in the world’s largest economy,” Zelter said.

Although the war may lead to slower growth and higher inflation, Kapito remains optimistic about the long-term outlook, pointing out that themes like artificial intelligence and the rise of private markets will be important drivers for investors.