Major Upgrade! Energy facilities have been involved, Wall Street "reassesses" the timeline of the Iran war, and revisits the "2022 scenario"

The Middle East conflict has suddenly escalated, with core energy infrastructure directly caught in the crossfire. As Israel and Iran strike each other's key oil and gas targets, Wall Street is quickly reassessing the timeline of this conflict, worried that it may evolve into a prolonged war lasting several months, reminiscent of the global energy supply shock in 2022. According to a report by CCTV News, Iran has announced a full-scale attack on U.S.-related oil facilities and has listed the energy facilities of Saudi Arabia, the UAE, and Qatar as legitimate targets. Previously, Israel, in coordination with the U.S., launched a raid on facilities related to the South Pars gas field, which processes about 40% of Iran's natural gas, prompting Iran to implement direct reciprocal retaliation. The substantial threat of energy disruption has triggered severe fluctuations in the crude oil market. On Wednesday, WTI crude oil rose from an intraday low of $91 to around $99. Brent crude surged by 7%, approaching $110 per barrel. The escalation of the situation is changing Wall Street's assessment of the duration of the conflict, with analysts suggesting that the likelihood of the conflict ending in April, the Strait reopening, and oil prices falling is decreasing. According to Barron's, analysts have warned that if the conflict does not end before April, oil prices could soar to $150 per barrel, with some warning that the conflict could evolve into an energy shock similar to the 2022 Russia-Ukraine conflict. If shipping through the Strait of Hormuz continues to be obstructed, the global economy will not only face skyrocketing oil and natural gas prices, but supply chain disruptions will quickly spread to industrial metals, fertilizers, and even agricultural markets. Wall Street Reassesses Conflict Duration, "2022 Scenario" Reappears As the scope of the fighting expands, Wall Street is significantly revising its expectations for the end of the conflict. According to Barron's, Christopher Granville, Managing Director of Global Political Research at TS Lombard, noted in a report to clients that he is extending the basic forecast for the duration of the shock from 4 to 5 weeks to 5 months, similar to the energy shock triggered by the 2022 Russia-Ukraine conflict. He stated that there is a risk of failure in Trump's strategy to achieve an early exit. UBS strategist Bhanu Baweja also warned that the market has become accustomed to the buffers provided by U.S. policy reversals and is not prepared for a prolonged conflict. He predicts that if the conflict does not end in April, oil prices could reach $150 per barrel. Although the S&P 500 index has only fallen about 4% since the outbreak of the conflict, Baweja pointed out that the current average price-to-earnings ratio of 22 times makes U.S. stocks more vulnerable to energy shocks. Christopher Smart, Executive Partner at Arbroath Group, believes that a more likely scenario is a chaotic intermediate state, where the safety of navigation in the Gulf cannot be restored to pre-war levels. This would lead to long-term increases in energy prices and raise the likelihood of an economic recession The Strait of Hormuz Blocked, Affecting Commodities Globally The Wind Trading Desk previously mentioned that Bank of America pointed out in a research report that the Strait of Hormuz is the "master switch" of the global energy market. Francisco Blanch, a commodities and derivatives strategist at Bank of America, believes that if traffic through the strait continues to be obstructed, crude oil and refined oil will be forced to reprice with a higher risk premium. In the baseline scenario, the average price of Brent crude oil in 2026 is about $77.50 per barrel, while in extreme scenarios, the peak may exceed $240 per barrel. The impact is not limited to the oil and gas sector. In metals, the Middle East accounts for about 9% of global aluminum supply, and aluminum smelters such as Qatar's Qatalum have been controlled shutdown or declared force majeure. Bank of America predicts that in extreme cases, aluminum prices may exceed $5,000 per ton. Meanwhile, the interruption of sulfur exports from the Middle East may substantially impact production in Africa's copper belt in two to three months. In the agricultural and chemical sectors, the crisis is also spreading. The production of urea, a core raw material for fertilizers, is highly dependent on natural gas, and the gas supply disruptions in places like Qatar have led to production cuts in India and many parts of Europe. Bank of America warns that the urea shortage will drive up corn and wheat prices, with major agricultural product prices expected to rise across the board in 2026, where corn prices may approach $7 per bushel in extreme cases. Investor Response: Focus on Long-Dated Contracts and Safe-Haven Assets Despite facing severe challenges, some countermeasures are being implemented. Reports indicate that Saudi Arabia is rerouting crude oil through pipelines to western ports, with the average daily shipment volume at this port reaching 4.19 million barrels over the past five days, successfully restoring more than half of the pre-war normal levels. Regarding asset allocation, Bank of America points out that the market has not fully priced in long-dated contracts and volatility. The one-year implied volatility of crude oil and aluminum remains close to historical averages, indicating that the market still expects the conflict to be short-term. Bank of America recommends that investors pay attention to long-dated Brent options and agricultural product deferred options. On a macro level, Bank of America maintains a 12-month target price for gold at $6,000 per ounce. The report states that if the war extends into the third quarter or the entire year, the coexistence of high inflation and economic stagnation will force the Federal Reserve to cut interest rates before inflation peaks, which will be a strong driving force for gold to break through $6,000 to $6,500 per ounce. Conversely, if oil prices exceed $160 per barrel, leading to a collapse in global demand, metal and grain assets will face significant downside risks