Market Disruptions But No Black Swans in Middle East (Yet)
The relatively measured reaction to an escalation of tensions between the U.S. and Iran seems justified, for now.
Alarming and unsettling, yes, but not panic-worthy.
Photographer: Ali Mohammadi/BloombergMarkets hate black swans and always will. Ever since Nassim Nicholas Taleb’s book of 2007, any extreme but very unlikely event has been labelled a “black swan” in a reference to the philosophy of knowledge. Just as Europeans were justified in believing that all swans were white, until they discovered Australia and realized that some swans are black, so markets have difficulty dealing with events for which there is little precedent.
With the decade only three days old, its first bona fide geopolitical shock has already shown us the problem. The news that the U.S. had killed Qassem Soleimani, leader of Iran’s Revolutionary Guards’ Quds force, is a significant escalation of a conflict that has simmered for decades. All-out war between the U.S. and Iran is now more likely than it was before. And it is wise to assume that Iran will follow through on its promise of “severe retaliation” for an act that it describes as an act of war.