CITIC Securities: The Iran situation is highly uncertain. Focus on the main theme of "hedging + inflation" and make phased allocations to energy assets.

CNBC Finance APP has learned that CITIC Securities released a research report stating that the Iran conflict has lasted for a week, and its impact is spilling over into the global economy and markets through the Strait of Hormuz, causing a significant rise in energy prices. When the Strait of Hormuz is “affected,” the import of crude oil by Japan, South Korea, Thailand, Singapore, and India’s oil and gas supplies may be the first to be impacted. The rise in energy prices will inevitably push global inflation higher. Faced with the high uncertainty of the Iran situation, investors can focus on the main theme of “risk aversion + inflation” and allocate energy assets in phases. The US dollar is a relatively consensus-driven currency during the conflict and may remain relatively strong in the near term. The 10-year US Treasury yield may lack sufficient downward space.

CITIC Securities’ main views are as follows:

The impact of the Iran conflict is spilling over into the global economy through the Strait of Hormuz.

The Strait of Hormuz is a critical hub for global energy trade, mainly connecting oil-producing countries in the Persian Gulf with Asian energy importers. After the escalation of the Iran situation, shipping through the Strait of Hormuz has rapidly decreased, and oil production activities in the Persian Gulf have also been affected. Global oil prices and European natural gas prices have surged significantly, though neither has yet surpassed the peaks seen during the 2022 energy crisis.

When the Strait of Hormuz is “affected,” some Asian economies will face noticeable external shocks.

Japan, South Korea, Thailand, and Singapore each import over 50% of their total crude oil from the six Persian Gulf countries (Saudi Arabia, Iraq, Qatar, UAE, Kuwait, Bahrain), making their oil supplies most vulnerable if the Strait of Hormuz is closed. India relies on 75% of its oil and gas imports from these six countries and is highly dependent on navigation through the Strait. Closure of the Strait would impact each country’s energy import behavior (e.g., shifting to imports from Russia and Brazil). Additionally, Thailand, Singapore, South Korea, and India have crude oil imports accounting for over 3% of GDP. If the Strait remains effectively closed for a long period, these four economies could face “second-round shocks” from potential secondary effects on energy supply. However, their strategic petroleum reserves and long-term supply agreements can help buffer these impacts.

Rising energy prices will inevitably boost global inflation.

The bank estimates that a 10% increase in Brent crude oil prices roughly corresponds to a 0.13% rise in the US CPI. If oil prices stay at the March weekly average of $84 per barrel, recent increases could raise US CPI by about 0.3%, which is acceptable. However, if prices continue to rise above $90 per barrel, inflation risks become significant. The ECB estimates that a 14.2% increase in oil prices and a 20.0% increase in gas prices by 2026 would raise the Eurozone HICP inflation rate by 0.5 percentage points, similar to current conditions. The bank believes the current situation is less severe than the 2022 energy crisis. It estimates that a 10% increase in the Japanese yen oil price roughly corresponds to a 0.2% rise in Japan’s comprehensive CPI. If current oil prices persist, the Iran conflict’s inflationary push in Japan will roughly offset the inflation mitigation effect of high domestic electricity and gas subsidies.

Focus on “risk aversion + inflation,” consider phased energy allocations, and expect the US dollar to remain relatively strong and volatile.

In the week following the outbreak of the Iran conflict, global stock markets declined broadly, energy prices surged, the US dollar strengthened, and overseas bond markets weakened. Interestingly, gold, the yen, and the Swiss franc have not recently shown “safe-haven” attributes. South Korea’s stock market experienced sharp declines followed by sharp rebounds, indicating mixed market sentiment toward gold. Rising oil prices have also led markets to reduce expectations of loose dollar liquidity. While risk appetite has declined, it has not shifted entirely to “full risk aversion.” Given the high uncertainty of the Iran situation and unknown peak oil prices, investors can phase their energy asset allocations to capture potential upside. However, market pricing of geopolitical conflicts tends to become dull, and conflicts eventually end. When the Iran situation eases, energy exposures in portfolios should be adjusted accordingly. The US dollar is a currency that can more easily form a “risk aversion + inflation” consensus during conflicts and may remain relatively strong and volatile in the near term. The 10-year US Treasury yield may lack sufficient downward space under the scenarios of “controlled conflict with stable economy” and “uncontrolled conflict with rising inflation.”

Risk warning: The Iran situation or other unexpected events may have a greater impact than expected; overseas economic and inflation data may outperform or underperform expectations; global market liquidity or sentiment may change more than anticipated.