The conflict between the U.S. and Iran has lasted nearly two weeks, and market patience is wearing thin. Oil prices have returned to the triple-digit range, and U.S. stocks are under pressure. 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 Strait of Hormuz remains blocked and oil prices stabilize above $100 per barrel, confidence in the market's expectation that &#34;the Trump administration will support the stock market through policy measures&#34; will be tested.
In this context, Citigroup's global macro strategy team has reviewed the last five oil crises and believes that the &#34;Tanker War&#34; during the Iran-Iraq War in the 1980s is more relevant to the current reality than the crises of the 1970s that are often cited, providing more practical guidance for investors' asset allocation.
<h2>Why the 1970s Analogy Fails</h2>
In the face of the Middle East oil crisis, the market's instinctive reaction is to look back to the 1973 Yom Kippur War and the 1979 Iranian Revolution—two oil shocks that caused severe turmoil in the global economy. However, the Citigroup global macro strategy team believes this analogy does not hold.
The core reason lies in the differences in market structure at the time. Strategists point out that oil prices in the 1970s were artificially pegged for a long time, and price controls suppressed market volatility. &#34;Pegged exchange rates typically suppress volatility; once the pegging mechanism is broken, the suppressed volatility will be released in a concentrated manner, causing damage far beyond the natural adjustments in a flexible market.&#34;
At the same time, there are two key differences in the current situation: the U.S. is now a net exporter of oil, and the global economy's dependence on oil has significantly decreased. These two points greatly diminish the comparability of the current situation to that of the 1970s.
<h2>&#34;Tanker War&#34;: A Historical Mirror More Relevant to Reality</h2>
Strategists have turned their attention to the Iran-Iraq War of the 1980s. At that time, Iran and Iraq attacked each other's and third-party tankers in the Persian Gulf, leading to a 20% drop in tanker traffic through the Strait of Hormuz, ultimately forcing the U.S. Navy to escort ships.
From a price trend perspective, this historical period aligns more closely with the current situation. Oil prices peaked in July 1987 after a U.S. ship hit a mine, yet the S&amp;P 500 index maintained an upward trend throughout this period, despite experiencing &#34;Black Monday&#34; in October of the same year.
This indicates that even in the extreme environment of an oil crisis combined with a market crash, the stock market still exhibited relative resilience. Citigroup strategists believe this historical trend bears similarities to the current market landscape and is worth noting.
<h2>Overweight U.S. Large-Cap Tech, But Wait for Volatility to Decline</h2>
In the face of escalating geopolitical risks, global investors have made significant changes to their holdings. After comparing asset allocations before and after the outbreak of war, Citigroup strategists found that the most notable adjustments are:
Investors have significantly reduced their overweight positions in the Korea Composite Stock Price Index (Kospi) and the FTSE 100 Index; meanwhile, the underweight in the Nasdaq Index has narrowed, while the underweight in the Russell 2000 small-cap index has deepened
Strategists believe that this is a systematic pullback in the market from the &#34;sector rotation trading&#34; of the previous few quarters. Defensive funds are concentrating on large-cap tech stocks and moving away from small-cap stocks that are more sensitive to the economic cycle. In terms of asset allocation recommendations, Citigroup maintains an overweight position in U.S. stocks but has downgraded U.S. small-cap stocks from overweight to neutral.
Citigroup strategists also specifically pointed out that the global coordinated release of reserve oil led by the International Energy Agency (IEA) has failed to push oil prices down significantly, which is a signal worth noting. &#34;We need to wait for volatility to subside before further increasing positions,&#34; they stated.
<h2>Retail Sentiment: Softening but Not Collapsing</h2>
The Barclays strategist team has also tracked retail sentiment. Data shows that current retail investor sentiment has cooled, but it has not fallen to the extremely pessimistic levels typically associated with significant market sell-offs.
Barclays stated that recent communications with clients confirm this judgment—most investors are choosing to wait and see, with some buying downside hedging protection, but there has not yet been a noticeable concentrated exit.
This aligns with the overall expectation that the market is still betting on a brief end to the conflict. However, strategists warn that this resilience has conditional boundaries: once the situation in the Strait of Hormuz evolves into a prolonged standoff, market confidence in Trump ending the conflict to stabilize the stock market may begin to fade

Citigroup pointed out that during the "tanker war," tanker transportation volume decreased by 20%, the U.S. military deployed escorts, and oil prices peaked after a U.S. vessel hit a mine. The S&P 500 maintained an upward trend throughout this period, similar to the current situation; it suggested an overweight position in large-cap U.S. technology stocks while avoiding small-cap stocks, and also noted that increasing positions should wait for a decline in volatility. Barclays warned that if the Strait of Hormuz remains blocked, market confidence in Trump's ability to stabilize the stock market by ending rapid conflicts may fade

- The ongoing conflict between the U.S. and Iran, lasting nearly two weeks, is impacting oil prices, which have surged back to triple digits, putting pressure on the stock market.  
- Barclays and Citi strategists highlight that historical parallels to the 1980s "Tanker War" may offer better insights than the 1970s crises, indicating that current market conditions differ significantly, with the U.S. as a net oil exporter now.  
- Despite a softening of retail investor sentiment, most are still holding their positions, reflecting a prevailing belief that the conflict will end shortly, although long-term tensions in the Strait of Hormuz could erode this confidence.

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Historical Repetition? The "Tanker War" of the 1980s May Be the Best Market Reference for the Current Situation in Iran