While most us were pouring champagne down our gullets, making resolutions we’ll never keep, and spending the weekend recovering from the fallout of those activities, there was quite the handful of events going down in the rest of the world.

Tumultuous activities in the Middle East, combined with continued disappointing statistics from China’s manufacturing sector, have cast an unfortunate shadow — leaving investors less than optimistic for the upcoming year.

The Saudis executed 47 people on Saturday, including prominent Shiite Sheikh Nimr al-Nimr.

Human Rights Watch said Saturday’s mass execution was the largest since 1980, when 68 militants who had seized Mecca’s Grand Mosque were beheaded.

Amnesty International believes that Saudi Arabia is using Nimr’s execution to settle political scores with Iran.

However, the consequences of these actions are already reverberating outside of the Middle East, beyond just political spheres.

Aside from stoking the fires of existing tensions between Shiite and Sunni groups, the controversial executions and subsequent protests added volatility to the already tumultuous global economic oil scene.

The two oil-producing countries have been at odds for some time now, but the events of this past weekend have investors especially concerned — a common result of increased Middle Eastern tensions.

Soon after Saturday’s executions, oil prices jumped before dropping back to $37.

“U.S. WTI light sweet crude was up 1.9 percent at $37.76 a barrel early afternoon in Asia, after jumping as much as 3.4 percent from the last day of trade in 2015, while Brent crude was up 2.3 percent at $38.12 a barrel after spiking 2.4 percent over the same period.”

Where it stops, nobody knows.

Unfortunately, the real concern is not if oil prices will be impacted but how.

Perceiving Saturday’s executions as a declaration of war, Iran has already threatened violent revenge. Saudi Arabia (and allies, including Bahrain) cut ties with Iran after Shiite protesters attacked its embassy in Tehran.

In response, Iranian diplomats have been given 48 hours to leave Saudi Arabia.  

Tensions between the two countries make it very unlikely that the two OPEC founders and oil producers will cooperate to regulate output and prices.

Saudi Arabia, struggling to maintain market share, has already repeatedly refused to cut production, an action that could have helped to lift prices. Should Shiites follow through with their threats, it will be the oil-producing Eastern Province of Saudi Arabia that will be impacted, potentially interrupting existing supplies and adding to price volatility.

“Saudi Arabia produces about 10 million barrels of oil a day, while Iran’s output is about 3 million barrels a day, so any potential supply or shipping disruption would have a significant impact on the market.”

—Neil Beveridge, Bernstein Commodities & Power

It’s also important to remember the lifted sanctions on Iranian oil production, which may throw another wrench in previous forecasts of improved oil prices.

Iran has declared that it will increase production by 500,000 barrels of crude per day within six months of eased sanctions. This will eventually increase to an additional 1.5 million per day in the course of the following months.

The lifted sanctions come at a time when most experts predict production declines from other oil producers like the U.S. and Russia.

“The Saudi Arabia and Iran issue might be good for oil, but the increase in geopolitical risk means it’s an overall negative for the financial markets.”

—Masayuki Otani, Tokyo-based chief market strategist at Securities Japan Inc.

Ripple Effect

As if the supply side of the oil sector wasn’t enough to have you worried, the demand side looks even bleaker. The world’s second-largest oil consumer started the year off with epic economic lows.

Reports from China show 10 straight months of sub-par productivity in the manufacturing sector — just one of many signs that the Chinese economy is stalling out.

This Monday was the worst recorded start-of-the-year activity for Chinese stocks… ever.

It was also the worst single-day drop since August of last year. (So much for a “fresh start.”)

The Shanghai Composite Index (SHCOMP) fell a record 6.9% before trading was halted. The Shenzhen Composite, a smaller index often compared to the Nasdaq, fell 8.2%.

The fall was so drastic that Chinese authorities were forced to trigger circuit breakers, which they (thankfully) established this past December.

Unfortunately, the 15-minute “time out” from trading, which was implemented after a rapid 5% dive, was not enough to restore stability.

“The circuit breaker system actually creates a downward spiral… Having this so-called system in place is actually making the selling worse.”

—Hao Hong, managing director at Bank of Communications Co.

Just minutes after trading resumed, losses continued further to 7%, as even more nervous investors hurried to sell.

For the first time in China’s stock market history, trading was shut down for the entire day.

How bad is it? Well, pretty bad. Markets worldwide felt the impact of this one:

• Japan’s Nikkei 225 lost more than 3%.
• Germany’s DAX index, containing stocks directly connected to Chinese consumption, dropped 4.3%.
• The CAC 40 in Paris was off 2.7%.
• The broad Stoxx Europe 600 was 2.7% lower.

We’re feeling it stateside as well. The Dow Jones Industrial Average dropped more than 450 points (2%) within a few hours of opening — the worst opening day in 84 years.

The S&P and Nasdaq dropped 2.5% and 3%, respectively.

Even the (usually) reliable and best-performing U.S. stocks took a beating. Shares of Netflix, Facebook, Apple, and others all dropped between 1% and 4%.

January Omens

The cause of all this activity? Fear.

2016 will likely be a difficult one, as last year’s economic conditions and financial concerns drag into the New Year with a vengeance.

(Some analysts predict the S&P will fall as much as 20% in the upcoming year, paralleling another global recession.)

Fortunately for investors, there are always pockets of opportunity in the market.

Where one sector suffers, another prospers. When there are lows, there will also be highs.

The same analyst who predicted a 20% fall in the S&P also predicts highs in gold and other mining sectors.

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