Goldman Sachs CEO David Solomon said he was surprised at markets’ response to the escalating Iran war, calling the dip in stocks “more benign” than he expected as the conflict entered its fifth day.
The Wall Street titan said investors haven’t panicked despite Iran’s shutdown of the Strait of Hormuz, a vital oil shipping lane, and threats to target passing vessels in a conflict that led to the killing of the Islamic Republic’s Supreme Leader Ali Khamenei.
“I’m actually surprised,” Solomon told the Australian Financial Review Business Summit in Sydney on Wednesday. “I think the market reaction has been more benign, given the magnitude of this, than you might think.”
“Markets tend to look at these geopolitical events, and unless they’re transmitting through directly in ways that affect economic growth … markets tend to react in a relatively benign way to these events,” Solomon said.
“That will be the case until it isn’t, and there’s a cumulative effect of everything that’s happening, and you get a much harsher reaction,” he added.
The Strait of Hormuz is the world’s most crucial oil transit chokepoint, with roughly one-fifth of the global liquid petroleum consumption passing through the narrow waterway every day.
Solomon predicted it could take weeks for markets to fully grasp the fallout. “I think it’s going to take a couple of weeks for markets to really digest the implications of what’s happened both in the short term and in the medium term,” he said.
The 64-year-old top boss warned of potential ripple effects throughout the economy if the war drags on.
“Does this become a more prolonged thing? Does it start to filter through to energy supply chains? Does it have other impacts that affect consumer sentiments (and) consumer behaviors in different parts of the world?,” he said. “Those are the things that I think you have to watch, and you don’t have enough information or data at this point to be clear.”
Solomon told the forum organized by the Australian financial news outlet: “The one thing that happens for sure whenever you have an event like this is people want a higher risk premium for any kind of risk asset they’re in, and so people start repricing things at the margin. And certainly we’re seeing that.”
A risk premium is the extra return demanded for holding volatile investments like stocks over safer ones.
US markets closed lower on Tuesday, with the Dow Jones Industrial Average down 0.83%, the S&P 500 off 0.94%, and the Nasdaq Composite shedding 1.02%.
Futures pointed to more losses on Wednesday. Oil prices, a key worry, steadied after initial jumps: Brent crude rose 2.7% to $83.58 a barrel, while West Texas Intermediate climbed 2.3% to $76.26.
Amid the turmoil, US Treasury yields, the interest rates on government bonds that are often seen as a safe haven, have climbed, bucking the usual trend where yields fall as investors buy bonds for security.
This shift stems from fears that spiking energy costs could fuel inflation, the general rise in prices, keeping interest rates high longer.
President Trump has downplayed the risks of long-term oil spikes, saying the war may bring “high oil prices for a little while” but predicting lower costs post-conflict.
But experts warn that prolonged Hormuz closure could push oil above $100 a barrel, squeezing global supply chains.
The war erupted Saturday when the United States and Israel launched airstrikes on Iran that the two allies said would cripple Tehran’s nuclear program and reduce its military capabilities.
Both nations have accused their longtime foe of exporting terror worldwide through armed proxies, and that the attacks were necessary before Iran could launch strikes of its own.
