Are Bigger Financial Market Shocks Still to Come? Experts: "War Panic Peak" May Arrive Within 1-3 Weeks!

Originally from: Cailian Press

Cailian Press March 16th — (Editor: Xiao Xiang) The S&P 500 index has only fallen 3% so far this year, and the decline from its all-time high is just 5%. It is still far from entering a bear market or a significant correction, indicating that investors have not yet panicked over the US-Iran conflict.

However, industry insiders are concerned that this situation could change rapidly.

Notably, despite oil prices soaring over 40% since the Middle East conflict ignited two weeks ago, with an almost 70% increase this year—one-fifth of the world’s oil supply is trapped due to Iran’s “de facto blockade” of the Strait of Hormuz—current oil prices remain below the peak seen after the Russia-Ukraine conflict in 2022.

“The end is still far off,” said Dan Alamariu, Chief Geopolitical Strategist at Alpine Macro, in a recent report. “The Strait of Hormuz is effectively closed, and the market is beginning to price in a prolonged and uncertain final showdown.”

Alamariu pointed out that although the US and Israel have carried out intense bombings destroying parts of Iran’s military forces and crippling its top leadership, the regime still threatens ships in the Persian Gulf and maintains high oil prices. Meanwhile, Tehran shows no interest in ending the conflict, as the country is trying to exert maximum economic pain to deter future attacks.

Latest signs indicate both sides are prepared to escalate further. Last Friday, the US attacked military facilities at Iran’s main oil export terminal on Khark Island and deployed up to 2,500 Marines to the Middle East. Iran, on the other hand, is increasingly targeting civilian infrastructure in neighboring Gulf countries and threatened to attack the region’s largest port last Saturday.

Potential for Further Escalation

Alamariu noted that Iran’s Houthi allies in Yemen might attempt to block Red Sea shipping, which, on top of the Hormuz Strait blockade, could bring additional economic pain.

He warned, “Simultaneous disruptions of both straits would intensify the impact, affecting the roughly 5 million barrels per day of oil normally passing through the Strait of Malacca, and damaging key Eurasian trade routes. This could further drive up inflation, especially in Europe.”

Certainly, the US is unlikely to launch a full-scale ground invasion of Iran—current mainstream views suggest that capturing Khark Island could cut off Iran’s revenue lifeline and force the country to negotiate without occupying Iranian territory.

However, even if only US Marines land on Khark Island, they face risks of missile and drone attacks from Iran. Recent weeks have shown that despite advanced US and Israeli missile defense systems, Iranian weapons can still strike US military bases across the Middle East.

Additionally, Alamariu mentioned a more alarming escalation option: Iran attacking desalination plants that supply most of the Gulf region’s freshwater. White House AI and crypto advisor David Sacks have discussed this possibility, warning that it could make the Gulf region nearly uninhabitable.

“Peak War Panic” Could Arrive in 1-3 Weeks

Therefore, although Alamariu’s baseline scenario still expects the war to end within two months, he admits that the likelihood of the conflict lasting longer than that is increasing, and the Strait of Hormuz may remain closed during the war.

This would keep Brent crude oil prices above $100 per barrel, possibly even exceeding $150.

Alamariu noted that the market has not yet reached maximum panic. “The peak of war panic is more likely to occur within the next 1 to 3 weeks. The longer the conflict lasts, the greater the economic losses priced in by investors.”

According to Alamariu, oil prices are often the gauge of market panic, typically peaking four to eight weeks after similar conflicts erupt. Currently, Iran’s war has entered its third week.

Panic could manifest as a global risk aversion event, such as intervention by Houthi forces, Gulf producers declaring force majeure, or further US escalation triggering stock market crashes. Alamariu pointed out that if the Strait of Hormuz remains closed, spillover effects could impact agricultural products and semiconductors, as shortages of key inputs like fertilizer and helium could occur.

“If we misjudge and the war drags on beyond two months, the strategy will shift from trading volatility to hedging against systemic economic damage,” he added.

It’s worth noting that last week, the International Energy Agency (IEA) stated that the Iran conflict has caused the most severe oil supply disruptions in history. Although IEA member countries have agreed to release 400 million barrels from strategic reserves, this will be far from enough to offset the daily supply cut.

Energy research firm Wood Mackenzie also warned last week that with 15 million barrels per day of Gulf supply suddenly disappearing, oil prices would need to reach $150 per barrel for demand destruction to occur and markets to rebalance.

Their data shows that, after inflation adjustment, oil prices actually peaked around $150 following the Russia-Ukraine conflict in 2022. However, Wood Mackenzie’s Chairman and Chief Analyst Simon Flowers stated that the current situation could be worse. “The scale of the at-risk oil supply is larger—and real. We believe that $200 per barrel in 2026 is not impossible.”

(Cailian Press Xiao Xiang)