Iran War: Iran will keep fighting, says Arboath Group Head

Summary

• Christopher Smart has revised his view on the Iran conflict, shifting from expecting a quick, contained U.S. victory to a belief in a prolonged conflict where Iran continues to fight despite military losses.
• The core risk is a long-term disruption to oil shipping through the Strait of Hormuz, where a less capable military (Iran) can harass and undermine shipping, creating persistent risk premiums.
• The timeline for potential U.S. military resolution is lengthy, with naval reinforcements not arriving until mid-April and an occupation of Kharg Island potentially taking 2-4 more weeks, implying oil market disruptions could last for months.
• The base case for many remains that oil flows resume in 2-3 weeks, but the downside risk case is a protracted period of reduced, high-risk shipments, supporting higher oil prices for longer.
• Higher, sustained oil prices would hit U.S. consumer confidence and spending, especially heading into the driving season, with current national gasoline averages already at $3.91.
• This scenario would also create inflationary headwinds, complicating the Federal Reserve's effort to return to its 2% target.
• Geopolitically, Russia is a key beneficiary from higher oil prices and from the diversion of U.S. Patriot and other defense equipment from Ukraine to the Middle East.
• China is also seen as a strategic winner, cushioned by its energy reserves and benefiting from the diversion of U.S. naval assets from the South China Sea, potentially giving it more leverage in future trade negotiations.