'Risk of irreversible loss': BofA pointed to underestimated threats of war in Iran

Investors may underestimate the scale of global economic turbulence, which can provoke a war in the Middle East, said the global economist of Bank of America Securities (BoFA) Antonio Gabriel. His opinion is quoted by Bloomberg. According to BoFA analysts, the main risks in connection with the armed conflict is not so much the growth of inflation, on which the markets are now focused, as the resistance of world economies to energy shocks. And also - irreversible losses in energy production in the Gulf countries, writes Business Insider.

- Among the most dangerous factors that could affect the global economy in connection with the escalation of conflict in the Middle East, analysts at Bank of America named "how long-term energy shocks will be" and how long the uncertainty caused by the war will continue.

"While a quick resolution to the conflict is possible, we believe a continuation into the second quarter [2026] is just as likely, and a more protracted scenario cannot be ruled out," Bloomberg quoted Bank of America economist Antonio Gabriel as saying. "Markets appear to be pricing in a predominantly temporary shock to [oil] prices," he added.

- As another risk that markets may underestimate, "in addition to disruptions in shipping" in the Strait of Hormuz, Bank of America analysts called "the possibility of irreversible losses in energy extraction and production in the Persian Gulf - depending on the scale of Iran's response". On March 17, UAE authorities suspended operations at the Shah gas field near the Saudi border after an Iranian drone attack. The strike caused a fire at the facility, which is operated by Adnoc and Occidental Petroleum.

Because the U.S. is less dependent on oil supplies from the Middle East, the energy shock will hit Europe and Asia harder, but its effects will also impact the stock market and affect supply chains in the technology sector, BofA said.

- In addition, analysts note, "further supply-driven increases in U.S. WTI crude oil prices could be a headwind for the S&P 500 and for low-income consumers who are already feeling the pressure" (quote from Business Insider). The S&P 500 index is down about 4% from its all-time high it reached in late January. This, according to Bank of America economist Antonio Gabriel, indicates that investors are relatively calm amid the war. At the same time, the growth of inflationary concerns is forcing market participants to reconsider expectations on the scale of the Fed's rate cuts this year.

March 17 Brent crude futures rose about 2% to $102 a barrel, while April futures for U.S. West Texas Intermediate crude added 1.76% to $95.

Helima Croft, head of commodities strategy at RBC Capital Markets, raised her estimate of the duration of the conflict in the Middle East and its impact on oil prices on March 16, Bloomberg writes. "Expanding U.S. military targets, as well as Iran's asymmetric capabilities and its desire to deter further [U.S. and Israeli] attacks, could drag the conflict well beyond the spring. We believe oil prices will exceed the high of $128 a barrel reached when the Russia-Ukraine conflict began in 2022 if the war in the Middle East drags on for another three to four weeks without significant progress in securing shipping [through the Strait of Hormuz]. And if it drags on for several months, prices could exceed the 2008 peak," she wrote.

Strategists at Goldman Sachs and Morgan Stanley said on March 16 that they remain optimistic about U.S. stocks, pointing to support from earnings growth and more moderate company valuations than before. At the same time, according to Stephen Parker, co-chairman of global investment strategy at JPMorgan Private Bank, markets are "somewhat underestimating the risks associated with the war," Bloomberg writes.

This article was AI-translated and verified by a human editor