Major upgrade! Energy facilities have been drawn in, Wall Street "reassesses" Iran war timetable, raises the "2022 scenario" again

The Middle East conflict has suddenly escalated, with core energy infrastructure directly drawn into the fighting. As Israel and Iran strike each other’s key oil and gas targets, Wall Street is rapidly reassessing the timeline of the conflict, concerned that it may evolve into a months-long protracted battle, replaying the global energy shock of 2022.

According to CCTV News, Iran has announced it will fully strike American-related oil facilities and has listed the energy facilities of Saudi Arabia, UAE, and Qatar as legitimate targets. Previously, Israel, in coordination with the US, raided facilities related to the South Pars gas field, which processes about 40% of Iran’s natural gas, prompting Iran to carry out direct reciprocal retaliation.

The substantive threat of energy disruption has triggered violent swings in the crude oil market. On Wednesday, WTI crude rose from an intra-day low of $91 to near $99. Brent crude jumped 7%, approaching $110 per barrel.

The escalation is changing Wall Street’s assessment of the conflict duration, with analysis suggesting the chances for the conflict to end in April, the strait to reopen, and oil prices to fall are decreasing.

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

If the obstruction in the Strait of Hormuz persists, the global economy will face not only surging oil and gas prices but supply chain disruptions rapidly spreading to industrial metals, fertilizers, and even agricultural markets.

Wall Street reassesses conflict duration, “2022 scenario” reappears

As the scope of fighting expands, Wall Street is significantly revising expectations for when the conflict will end.

According to Barron's, TS Lombard Global Political Research Managing Director Christopher Granville noted in a report to clients, he is extending his base forecast for the duration of the shock from 4-5 weeks to 5 months, similar to the energy shock caused by the Russia-Ukraine conflict in 2022. He stated that Trump’s strategy for early exit faces risk of failure.

UBS strategist Bhanu Baweja also warns that the market is accustomed to the buffer brought by US policy reversals but has not prepared for a prolonged conflict. He predicts that if the conflict does not end in April, oil prices could hit $150 per barrel. Although the S&P 500 index has only fallen about 4% since the conflict broke out, Baweja points out that the current average price-to-earnings ratio of 22 for US stocks makes them even more vulnerable to energy shocks.

Arbroath Group Managing Partner Christopher Smart believes a more likely scenario is a chaotic intermediate state, where Gulf navigation safety cannot return to pre-war levels. This will bring lasting rises in energy prices, increasing the chance of economic recession.

Strait of Hormuz blocked, comprehensive impact on commodities

As previously mentioned by Chase Trading Desk, Bank of America pointed out in a research report that the Strait of Hormuz is the “main switch” of the global energy market. Francisco Blanch, Bank of America’s commodities and derivatives strategist, believes that if strait traffic remains blocked, crude oil and refined products will be forced to be repriced with higher risk premiums. In the base case, Brent crude average price for 2026 is about $77.50 per barrel, and in an extreme scenario, the peak may exceed $240 per barrel.

The shock is not limited to oil and gas. In metals, the Middle East accounts for about 9% of global aluminum supply, and smelters such as Qatar's Qatalum have already been controlled shut down or declared force majeure. Bank of America forecasts that in an extreme case, aluminum prices may break $5,000 per ton. At the same time, disruption of sulfur exports from the Middle East may substantially impact production in Africa’s copper belt in two to three months.

In the agriculture and chemical sectors, the crisis is also spreading. The production of urea, a key fertilizer ingredient, relies heavily on natural gas. The gas supply cutoff in places such as Qatar has already led to production cuts in India and Europe. Bank of America warns that a shortage of urea will push up prices of corn and wheat, and expects major agricultural product prices to be adjusted upward across 2026; in extreme cases, corn prices may approach $7 per bushel.

Investor responses: Focus on long-term contracts and safe-haven assets

Despite facing severe challenges, some countermeasures are underway. Reports indicate Saudi Arabia is redirecting crude oil through pipelines to the western port of Yanbu, which in the past five days averaged shipments of 4.19 million barrels per day, successfully restoring more than half of pre-war normal levels.

For asset allocation, Bank of America points out that the market has not yet fully priced in long-dated contracts and volatility. One-year implied volatility for crude oil and aluminum remains near historical averages, indicating the market still expects the conflict to be short-term. Bank of America recommends investors focus on far-month Brent options and agricultural deferred options.

At the macro level, Bank of America maintains a 12-month gold price target at $6,000 per ounce. The report notes that if the war extends to the third quarter or the whole year, a scenario of high inflation coexisting with economic stagnation will force the Federal Reserve to cut rates before inflation peaks, which will drive gold to break through $6,000-$6,500 per ounce. Conversely, if oil prices break $160 per barrel and trigger a global demand collapse, metal and food assets will face major downside risks.

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