"A phase of nervous anticipation": three scenarios for Iran and who stands to gain from escalation

The U.S. joining the Israeli strikes on Iran is a sharp but so far controllable spike in geopolitical risk. The main question is whether there will be an Iranian response. According to Middle Eastern logic, it is inevitable - it is a matter of prestige and pressure from within, argues Astero Falcon portfolio manager Alyona Nikolaeva. What scenarios are possible, who will benefit from the escalation of the conflict and what to expect investors after the start of trading - in this material.

- Basic is a sluggish proxy war: Iran is limited to rhetoric and attacks by the Houthis, the Strait of Hormuz - one of the world's main arteries for oil supplies - is not blocked. Brent crude oil is around $80-90 per barrel. CPI (consumer price index) in the US is rising slightly, but rates remain on pause. This the market will digest.

- Escalatory: strikes on US bases, serious slowdown in the Strait of Hormuz. Brent over $100 a barrel, US Fed postpones rate cut, bond yields rise, liquidity pressures intensify. Inflation is approaching 3.5%. Emerging markets and high-yield segment under pressure.

- Shock: closing/mining the Strait of Hormuz, attacks on civilian ships or US warships. Brent breaks through $120-130 per barrel. Crisis in spot prices for gas, logistics, ship charters. Central banks are trapped: inflation rises, economic growth slows. Global risk-off begins - investors get rid of risky assets and choose protective ones. Serious asset sell-offs and outflows from emerging markets are possible. But the sustainability of such levels is very doubtful: the economy will not digest them. In 2008, this led to depressed demand and recession;

On Monday, June 24, Brent crude is likely to breach $80 per barrel. Further out, technical analysis puts the target at $101. The Strait of Hormuz is the main point of fragility. Now there may be attempts to slow down movement through the strait in any way possible: for example, through inspections. 50 tankers are urgently trying to leave the region and there is chaos in the strait. About a quarter of the world's oil exports plus all of Qatar's LNG passes through the Strait of Hormuz through. Any pause is a blow to the entire energy industry: oil, gas, ship charters, shipments to Southeast Asia. China, as the biggest beneficiary of uninterrupted supplies, remains the main deterrent to a complete shutdown. Europe is not in a favorable situation either: in addition to the dragging energy crisis, gas reserves for winter are now being formed, and all gas from Qatar goes through the Strait of Hormuz. Plus more expensive freight. As a result, any summer price increase is automatically transferred to the heating season. And this is a plus to inflation.

- Crypto typically reacts to headlines. Bitcoin is above $100k, ether is down and more volatile. But there was a small rebound after the drop: this says more about crowd intuition than protective demand. Nevertheless, crypto is pretty good at predicting the next day's capital behavior.

- Israel's TA-35 stock index gained 5% in momentum in June 22 trading, while Saudi Arabia and Kuwait's indices were also up. The region doesn't think the point of no return has arrived. Capital revalues quotations of oil and gas and defense companies. But things could change in hours - depending on Iran's response.

- The dollar, trejeris, Swiss franc are likely to rise - as a bet on defensive assets. This is not a panic, but a classic flight-to-quality - a spillover from risky assets to protective assets. 

- Gold will show moderate growth. There are no signs of an all-out war yet -  the market is cautious, but not scared. The precious metal is already overbought, but in case of aggravation will continue to act as insurance: "safe harbors" for investors are in focus. 

- Futures on the S&P 500 will open in the negative. Geopolitics postpones expectations of a rate cut by the US Federal Reserve. If oil fixes above $85 per barrel, the Fed will get a new headache because of inflation growth. Liquidity will start to tighten, and this is a blow to stocks and high-yield bonds.

All those outside the region. Russia, Kazakhstan, Azerbaijan, USA, Norway. Russian Urals oil costs $75, the difference in price with Brent is $2. If the spread between Brent and Urals tightens more and prices rise, this is additional income for the Russian budget and positive for the ruble. But Russia will gain both in oil and gas only in the scenario of a "sluggish" war. In a real war, demand will seriously degrade.

Inflation is the main macro risk. Bloomberg estimates that oil at $130 a barrel will give +1.3 p.p. to US CPI. Gasoline at $5.1 a gallon will become a reality. Even $100 is already moving inflation up and closing the window for Fed and European Central Bank rate cuts. The Bank of England, with oil at $85 a barrel, will put rate cuts on pause until at least 2026, according to a Bloomberg forecast. The Bank of Japan - caught off guard by rising prices, and is likely to raise rates as early as July. Vulnerable emerging markets - Turkey, India, SEA. Latin America (oil exporters), especially Colombia and Brazil, are the winners.

On Monday, oil will go up, the market will go into a slight minus. So far, it is not a disaster, but a phase of nervous anticipation. The key is Iran's response, which could take up to 48 hours. If it is limited to rhetoric or proxies, the market will exhale. If there are strikes on US bases and vessels, that's another story. We're at a fork in the road right now, but Monday is sure to be volatile. The focus is defense and liquidity - with the possibility of a quick reversal as the situation becomes clearer.