The recent escalation in the Middle East has raised concerns about the potential impact on oil prices. While the initial attack on tankers was a significant event, the counterattacks by Iran could have even more severe consequences. According to the author, the most likely next wave of US attacks will involve ground troops, and the Iranian counterattack could include regional oil infrastructure, water infrastructure, or humanitarian crisis.

The author believes that the US withdrawal from the region would not necessarily lead to Iran reopening the Strait of Hormuz (SoH) for normal oil flows. Instead, Iran may retaliate with a counterattack that could have devastating consequences for the global economy. The author notes that while the GCC states may have enough military might to take and hold SoH, an international coalition would be necessary to execute such a plan.

In terms of market impact, the author expects weakness in the equities market and higher energy prices leading up to the April 6 deadline. The longer-term implications are uncertain and depend on the status of SoH after the conflict ends. However, the author notes that identifying positive catalysts for the oil market may be challenging over the holiday weekend.