History repeating itself? The "Tanker War" of the 1980s may be the best market reference for the current situation in Iran.

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The U.S.-Iran conflict has lasted for nearly two weeks, and market patience is wearing thin. Oil prices have returned to triple-digit levels, U.S. stocks are under pressure, and a little-known historical conflict may provide the most relevant market reference for the current situation.

The Barclays strategy team points out that the market still expects the conflict to end in the short term and sentiment remains stable. However, they warn that if the blockade of the Strait of Hormuz continues and oil prices stabilize above $100/barrel, confidence in the market's "expectation that the Trump administration will support the stock market through policy measures" will be tested.

Against this backdrop, Citi’s global macro strategy team reviewed the last five oil crises and believes that the "tanker war" during the Iran-Iraq War in the 1980s is more relevant to the current situation than the crises of the 1970s, and provides more practical guidance for investors' asset allocation.

Why the 1970s Analogy Fails

In the face of the Middle East oil crisis, the market's instinctive reaction is to recall the Yom Kippur War of 1973 and the Iranian Revolution of 1979—two oil shocks that threw the global economy into turmoil. However, Citi’s global macro strategy team believes this analogy does not hold.

The core reason lies in market structure differences at the time. The strategists point out that oil prices in the 1970s were artificially pegged for a long time, and price controls suppressed market volatility. "Pegged rates usually dampen volatility, but once the peg breaks, suppressed volatility is released in a concentrated burst, causing more disruption than natural adjustment in a flexible market."

Moreover, there are two key differences today: the U.S. is now a net exporter of oil, and the global economy’s dependence on oil has dropped sharply. These two points greatly reduce the comparability of the current situation to the 1970s.

"Tanker War": A More Reality-Based Historic Analogy

The strategists turned to the Iran-Iraq war of the 1980s. At that time, Iran and Iraq attacked each other's and third-party oil tankers in the Persian Gulf, causing tanker traffic through the Strait of Hormuz to plunge by 20% at one point, and ultimately forcing the U.S. Navy to intervene for escort operations.

In terms of price trends, this historical period is a closer match to the present. Oil prices peaked in July 1987 after an American ship hit a mine, but the S&P 500 index continued its upward trend throughout this period, despite experiencing the "Black Monday" crash in October of that year.

This suggests that even in the extreme environment of an oil crisis combined with a market crash, the stock market still showed relative resilience. Citi strategists believe this historical trend is similar to the present market situation and should be referenced carefully.

Overweight U.S. Large-Cap Tech, But Wait for Volatility to Subside

Amid rising geopolitical risks, a clear change in global investor holdings has emerged. After comparing asset allocations before and after the conflict, Citi strategists find the most notable adjustments are:

Investors have significantly reduced overweights in the Korea Composite Index (Kospi) and the UK's FTSE 100; at the same time, the degree of underweight in the Nasdaq has narrowed, while the underweight in the Russell 2000 small-cap index has deepened.

Strategists believe this is a systematic unwinding of "sector rotation trades" from previous quarters. Defensive funds are shifting to large-cap technology stocks and moving away from small caps that are more sensitive to the economic cycle. In terms of asset allocation advice, Citi maintains an overweight in U.S. equities but has cut small-cap U.S. stocks from overweight to neutral.

Citi strategists also point out that the globally coordinated release of oil reserves led by the International Energy Agency (IEA) has failed to push oil prices down significantly, which is a warning sign. "We need to wait for volatility to fall further before adding more positions," they say.

Retail Investor Sentiment: Softening but not Collapsing

The Barclays strategy team also tracked retail investor sentiment. The data shows that retail investor sentiment has cooled, but is far from the extreme pessimism usually associated with heavy market sell-offs.

Barclays notes that recent communications with clients confirm this assessment—most investors are choosing to wait and see, some are buying downside hedges, but there is no obvious mass exodus yet.

This aligns with the overall market expectation that the conflict will be short-lived. But strategists warn that this resilience has its limits: if the situation at the Strait of Hormuz evolves into a prolonged standoff, confidence in Trump's ability to end the conflict and stabilize the market may quickly fade.

Risk Warning and DisclaimerThe market involves risks and investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the individual investment objectives, financial situation, or needs of specific users. Users should consider whether any opinions, views, or conclusions in this article are suitable to their specific circumstances. Investing based on this article is at your own risk. ```