Is it time to sell crude oil? Bank of America’s Hartnett: For Trump to win the midterm elections, the US-Iran war must be "de-escalated" in March.

``` Bank of America Chief Investment Strategist Michael Hartnett highlighted in his latest Flow Show report that domestic political pressures in the U.S. will force the Iran war to cool down in March. If the situation eases, oil and the U.S. dollar should be sold, while 30-year U.S. Treasuries should be bought; risk assets may also bottom out and rebound in March. Currently, the price of U.S. crude oil has surged 45% and gasoline prices have risen 15%, pushing Trump’s economic approval rate down to 40% and his approval on inflation down to a low of 36%. Hartnett believes that the Iran conflict is politically unsustainable; Trump must reverse the situation before the mid-term elections, meaning there will be a window for de-escalation in March. Once tensions ease, Hartnett provides clear trading guidance: oil should be sold at $90/bbl, the dollar sold when DXY exceeds 100, 30-year U.S. Treasuries bought at a 5% yield, and risk assets may bottom out in March. After Brent crude neared $120 at Monday’s open, it retreated to $107 at the time of writing. At the same time, Hartnett noted that if the conflict escalates, the U.S. will ensure oil supplies and maintain its AI technology dominance; oil, the dollar, U.S. tech, and defense sectors will outperform. Oil-importing countries like South Korea, Japan, and Europe will come under pressure, especially Japanese and European bank stocks, which face significant downside risk. Political Clock Countdown: Midterm Election Pressure Sets the Pace of War Hartnett’s core logic is based on a pragmatic political judgment: Trump’s governing foundation is being directly eroded by rising oil prices. Currently, Trump’s approval on economic issues has fallen back to 40%, with inflation approval even lower at 36%, both hitting low points. Meanwhile, U.S. oil prices have surged 45% since the conflict began, gasoline retail prices are up 15%, and inflationary pressures are being passed directly onto average voters. In Hartnett’s view, this makes a protracted Iran conflict politically unsustainable. The reality of the midterm elections requires Trump to reverse this trend; a rebound in Trump’s approval before Q2 is a necessary condition for risk assets to rise. Cooling Off Trade: Sell Oil, Sell Dollar, Buy Long-Term Bonds Hartnett believes that a de-escalation of the Iran situation will trigger the following trades: sell oil at $90/bbl, sell the dollar at DXY above 100, buy 30-year U.S. Treasuries at a 5% yield—risk assets could also bottom out in March. He also stresses that a “short war” would reignite the bull argument for assets benefiting from inflation: commodities and emerging market small caps would benefit from a renewed bear market for the dollar. However, Hartnett remains cautious about a full-blown rebound. He points out that new equity market highs require three conditions: sufficiently built-up short positions, a panic policy shift, and a reversal in liquidity peak expectations. Currently, none of these conditions have been met, and the S&P 500 has yet to experience a full price washout (such as falling below 6600 points); overall market positioning remains overweight. Escalation Trade: Oil, Dollar, and U.S. Tech Stocks Benefit Hartnett lays out another path: if the Iran situation escalates rather than cools off, asset allocation logic would fundamentally reverse. In this scenario, the U.S. would intervene fully to secure oil supplies and support the energy needed for AI infrastructure, benefitting: oil, the dollar, U.S. tech stocks, and the global defense sector. The cost would fall on oil-importing countries including South Korea, Japan, and Europe. Hartnett especially points out that in the escalation scenario, the greatest risk lies in Japanese and European bank stocks. Previously, these markets were considered key beneficiaries in this cycle. The Dollar Is the Key Barometer: If DXY Breaks 100, It Signals a Global Liquidity Turning Point Hartnett provides a framework for when “correction ends”: When exogenous shocks and over-optimism collide, three things are usually required: oversold assets bottom out, overbought assets are sold off, and safe-haven assets lose buyers. In his view, the first two price actions have shown signs, but oil and the dollar are still the keys to an “all clear” signal. Among all variables, Hartnett considers the dollar the most important core asset at present, defining the dollar index (DXY) as the “best global liquidity barometer”. He believes that if DXY breaks above 100, it means the peak of the global central bank rate-cutting cycle has arrived. On January 1 this year, the market priced a 100% chance of a Fed rate cut on June 17, now down to 37%. Additionally, a stronger dollar would flatten the yield curve and potentially trigger an inflation shock. This framework means the direction of the dollar is not only a currency signal but also a key indicator for gauging the global liquidity turning point, the Fed’s policy path, and whether risk assets can truly stabilize. Risk Warning and Disclaimer Markets have risks—invest cautiously. This article does not constitute personal investment advice nor does it consider individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their circumstances. Investing based on this article is at your own risk. ```