LONDON Iran's reaction to an Israeli strike on its nuclear facilities could be the difference between an instantly forgotten blip on financial markets and a seismic shock that tips the world back in to economic crisis.
Such a strike would certainly push oil prices sharply higher and send ripples across other markets. "The proverbial opening salvo would see prices jump 10 or 20 bucks," said Michael Wittner, head of energy research at Societe Generale.
But that is the only certainty.
"The problem is that the reaction is particularly unpredictable," said Metsa Rahimi, intelligence analyst at London-based consultancy Januian. "You simply can't say for sure what would happen next."
Societe Generale's Wittner agreed: "Markets would have a pretty short fuse but would wait to find a bit more. They will want to know if this is a one off or is it the beginning of a prolonged and sustained bombing campaign."
The grimmest scenario sees panic. The last sustained cross-market panic-driven sell-off was in September 2008, when the unexpected collapse of Lehman Brothers prompted a widespread reassessment of risk, sparking a markets nosedive that hit global trade and produced worldwide recession.
"You would certainly see an oil price spike -- probably to over $100 -- and a widespread rise in risk aversion. People would sell-off anything seen risky without discrimination," said Jeff Chowdhry, head of emerging equities at London-based fund manager Foreign and Colonial.
Chowdry said he did not expect any Israeli strike-related crash to be as violent or as prolonged -- but that he did expect it to be similarly herd-like, at least in the early stages.
Volatile emerging stock exchanges such as Russia, Brazil and the Philippines would be particularly hit more than Israel, which has grown used to conflicts and is known for its much lower price fluctuations.
In the long term, oil producers such as Russia and Nigeria might benefit from higher oil prices but in the short term their stock markets would be caught up in the general flight, he said. It was also likely that emerging currencies would be battered.
Airline stocks would also likely prove particularly vulnerable, with the twin impact of heightened fuel prices and greater security fears likely deterring travel.
How serious and sustained that hit would be would depend on how events then played out. Iran could decide to retaliate using militant attacks from proxies Hamas in the Palestinian territories and Hezbollah in Lebanon.
But it could also retaliate with conventional ballistic missile strikes on Israel or by moving to block the Straits of Hormuz, through which 40 percent of global maritime oil traffic moves each day.
"If we just get a one-off series of strikes and then maybe some retaliation through Hamas and Hezbollah, I think we will bounce back pretty fast," said F&C's Chowdhry.
"But if you get the two countries having a prolonged all-out conflict, it will be much much worse."
SECOND OIL SPIKE
Any incident in Hormuz would produce a second oil spike to as high as $150 a barrel -- as well as prompting an immediate retaliation by U.S. forces aimed at clearing the waterway and neutralizing Iran's handful of mine-laying ships, helicopters and submarines.
"If they could shut down the Straits of Hormuz, that is when prices go ballistic," said Societe Generale's Wittner, warning even a near-miss on a tanker would stop shipping for weeks. Anything that interrupted Iran's own oil exports could also push global oil prices higher. Iran produces some 3.75 million barrels per day, 4.4 percent of global demand. China is a key consumer and might be forced to find supplies elsewhere.
An unexpected conflict in the Middle East could be enough to make the difference between renewed -- albeit perhaps anemic -- recovery and another slump lower.
"It could be a Lehman-type event," said Anthony Skinner, political risk analyst for consultancy Maplecroft.
"The global economic recovery is very tenuous, governments are just having to withdraw from stimulus packages, we are still very much at risk of a W.-shaped recession. This could be the tipping point."
Skinner said he put the chances of an Israeli attack this year at 50 percent or more -- although that would not alone be enough to produce Lehman-level global slump without serious Iranian retaliation.
The risk would rise further over the next year and a half if Iran continued to push ahead with its military program.
"The stakes are extremely high for Israel," he said.
(Additional reporting by Chris Baldwin; Editing by Samia Nakhoul/Janet McBride)