Major Upgrade! Energy Facilities Have Been Drawn In, Wall Street "Revalues" Iran War Timeline, Mentions "2022 Scenario" Again

Middle East conflict suddenly escalates, directly involving core energy infrastructure in the fighting. As Israel and Iran exchange strikes on each other’s key oil and gas targets, Wall Street is rapidly reassessing the timeline of the conflict, worried it could turn into a prolonged war lasting months, reminiscent of the 2022 global energy supply shock.

According to CCTV News, Iran has announced it will fully target U.S.-related oil facilities and has listed energy facilities in Saudi Arabia, the UAE, and Qatar as legitimate targets. Previously, Israel, in coordination with the U.S., launched a surprise attack on facilities related to the South Pars gas field, which handles about 40% of Iran’s natural gas, prompting Iran to retaliate directly in kind.

The substantial threat of energy disruption has caused wild swings in the crude oil markets. On Wednesday, WTI crude rose from a daily low of $91 to around $99. Brent crude surged 7%, approaching $110 per barrel.

The escalation is changing Wall Street’s outlook on the duration of the conflict, with analysts now seeing a decreasing likelihood of the conflict ending in April, the Strait reopening, and oil prices falling back.

According to Barron’s, analysts warn that if the conflict does not end before April, oil prices could spike to $150 per barrel, with some even warning that the conflict could evolve into an energy shock similar to the Russia-Ukraine crisis in 2022.

If the blockage of shipping through the Strait of Hormuz persists, the global economy will face not only soaring oil and natural gas prices but also rapid disruptions across industrial metals, fertilizers, and agricultural markets.

Wall Street Reassesses Conflict Duration, “2022 Scenario” Reemerges

As fighting expands, Wall Street is significantly revising its expectations for the conflict’s end.

According to Barron’s, Christopher Granville, Managing Director of Global Political Research at TS Lombard, told clients that he is extending his baseline forecast for the duration of the impact from 4-5 weeks to 5 months, similar to the energy shocks triggered by the 2022 Russia-Ukraine conflict. He noted that Trump’s attempt to achieve an early withdrawal strategy risks failure.

UBS strategist Bhanu Baweja also warned that markets have become accustomed to the buffer provided by U.S. policy reversals and are not prepared for a prolonged conflict. He expects that if the conflict does not end by April, oil prices could reach $150 per barrel. Although the S&P 500 has only fallen about 4% since the conflict began, Baweja pointed out that the current average P/E ratio of 22 makes U.S. stocks more vulnerable to an energy shock.

Christopher Smart, Managing Partner at Arbroath Group, believes a more likely scenario is a chaotic middle ground where Gulf shipping security cannot be restored to pre-war levels. This would lead to long-term increases in energy prices and raise the risk of recession.

Strait of Hormuz Blockade, Broad Impact on Commodities

Previously, Bank of America highlighted in a research report that the Strait of Hormuz is the “main switch” for the global energy market. Francisco Blanch, Head of Commodities and Derivatives Strategy at BofA, believes that if the strait remains blocked, crude oil and refined products will be forced to reprice at higher risk premiums. Under baseline scenarios, Brent crude could average around $77.50 per barrel in 2026, with extreme scenarios potentially exceeding $240 per barrel.

The impact is not limited to oil and gas. In metals, the Middle East accounts for about 9% of global aluminum supply, with Qatar’s Qatalum and other aluminum smelters either shut down or under force majeure. BofA predicts that in extreme cases, aluminum prices could break $5,000 per ton. Meanwhile, disruptions in Middle Eastern sulfur exports could significantly impact copper mining regions in Africa within two to three months.

In agriculture and chemicals, crises are also spreading. Fertilizer raw materials like urea, which depend heavily on natural gas, have seen supply cuts in India and Europe due to gas shortages in Qatar and elsewhere. BofA warns that urea shortages will push up prices for corn and wheat, with major agricultural commodity prices expected to rise across the board by 2026, with extreme cases pushing corn prices close to $7 per bushel.

Investor Strategies: Focus on Longer-Dated Contracts and Safe-Haven Assets

Despite the severe challenges, some measures are underway. Reports indicate that Saudi Arabia is rerouting crude through pipelines to the western port of Yanbu, which has seen an average daily shipment volume of 4.19 million barrels over the past five days, successfully restoring more than half of pre-war normal levels.

For asset allocation, BofA notes that markets have not fully priced in long-term contracts and volatility. The 1-year implied volatility for oil and aluminum remains near historical averages, indicating that markets still expect the conflict to be short-lived. BofA recommends investors focus on forward Brent options and deferred agricultural options.

On a macro level, BofA maintains its 12-month gold target at $6,000 per ounce. The report states that if the war extends into the third quarter or the entire year, high inflation combined with economic stagnation will force the Fed to cut rates before inflation peaks, which could drive gold prices above $6,000 to $6,500 per ounce. Conversely, if oil prices break above $160 per barrel and trigger a global demand collapse, metals and food assets will face significant downside risks.

Risk Warnings and Disclaimers

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