Persian Gulf production is 20% of global crude supply, 20% of global LNG supply, and 30%+ of global fertilizer supply. An enormous disaster is developing as Iran blocks the Strait of Hormuz.

• Iran's control of the Strait of Hormuz is the only factor markets are watching right now.

• If trade interruptions continue Asian countries will begin Covid-like shutdowns as they run out of fuel.

• The resulting recession may push down stocks and yields until the inevitable massive stimulus response by the US government. At that point the next wave of inflation will crash ashore.

Table 1: Market performance estimates as of 3/31/2026 (LIMW)

Market Commentary

The stock markets only care about how much damage the Israeli-US-Iranian war will cause to the global economy. While we don't see any disruptions here in the United States, already there are signs of rationing and shortages in various parts of Asia. It is only a matter of time till the global price of key energy products rise dramatically, even here in the U.S. where we have plenty of output.

That implies lower than expected earnings growth for the broad stock market. For the bond market the call is more difficult: while lower growth is usually good for bond pricing and lower yields, a commodity price spike will inflame fears of inflation which is bad for bond pricing.

Figure 1: S&P 500 2019-2026 (LIWM)

Figure 2: Aggregate Bond Market ETF 2019-2026 (LIWM)

Nothing else matters right now

From the Persian Gulf:

20% Global Crude Oil Supply

20% Global Liquified Natural Gas (LNG) Supply

30%+ Global Fertilizer (Urea)

In recent decades, the world has tried to decarbonize as a way to slow down climate change. That was the thinking behind the mass electrification of transportation and the government subsidies that encouraged it.

Unfortunately, this increased the global economy's sensitivity to oil flow disruptions because now only the most critical functions remained tied to crude oil supply. In other words, if oil could be replaced, it was. The remaining demand for oil and gas products are from people that won't or can't change.

There is an enormous supply chain supported by oil and liquid natural gas (LNG) flow from the Persian Gulf. To get a sense for how big, look at the size of global supply interrupted by the closure of the Strait of Hormuz.

These are enormous changes to the supply/demand balance for energy products.

Figure 3: Percentage of critical commodities affected by Iran War (Katusa)

Biggest oil crisis ever

It's difficult to live through important historical events; we are living through one today.

This oil crisis is the LARGEST one of our lifetimes and its effects are just starting to be felt. There are thousands of ships at anchor on each side of the Strait of Hormuz. They long ago should have delivered or picked up their cargoes.

You can see that for just crude oil, 20 million barrels/day are blocked from their passage through the Strait of Hormuz. There are stories that Saudi Arabia has bypassed ~7 million barrels/day to a Red Sea port, but even with that adjustment, these are gigantic numbers.

Figure 4: Size of oil crisis in barrels and as a percentage of total demand (LIWM)

Not only are cargoes being blocked, but major refineries and other vulnerable civilian structures are being targeted. These are complicated machines that take years to build and perfect. One well-placed drone attack can destroy production for a very long time.

Figure 5: Major facilities damaged so far in the Persian Gulf (LIWM)

Figure 6: Key chokepoints and assets in the Mideast (S&P Global)

Past Mideast wars weren't disasters, unless there was an associated oil crisis

If we look at the history of Mideast wars, the onset of hostilities was usually bullish. However, if there was a corresponding oil crisis like 1973 or 2022, the outcome was much darker. That bottom tan line is the 1973 Yom Kippur war and the subsequent OPEC oil embargo.

Figure 7: European stock reaction to Mideast wars (MSCI)

Look at how low and stable oil prices were in the years leading up to the 1973 oil embargo. Let's hope this interruption isn't as bad as that six month stretch.

Figure 8: Oil price history leading up to 1973 OPEC oil embargo (Bloomberg)

The Yom Kippur war was short, but the subsequent oil embargo lasted about six months. The S&P 500 took a long time to recognize the economic damage and react to it. There were key differences to today's particular circumstances, but the ongoing hostilities and extensive damage to refineries lead us to believe this oil crisis will be with us for a long time.

Remember that tariffs and embargoes are policy decisions that can be easily reversed. Damaged ships, refineries, LNG trains, and oil fields will take years to bring back on-line.

Figure 9: S&P 500's delayed reaction to the 1973 oil embargo (Bloomberg)

Final thoughts

The Israeli-US-Iranian war has completely changed our outlook for the economy and markets for 2026. It is our view that it will be a very bumpy ride, especially if a peace deal does not materialize soon.

We are underweight stocks in our Dynamic strategies as we wait for the inevitable earnings hit from the energy shock.

As always, we welcome your feedback and are happy to discuss our research and how it applies to your situation.

Rob 281-402-8284

Chris 281-547-7542

Rob Lloyd, CFA^®

Lloyds Intrepid Wealth Management

1330 Lake Robbins Dr., Suite 560

The Woodlands, TX  77380

281-402-8284

Robert.Lloyd@lloydsintrepid.com

www.lloydsintrepid.com

Christopher Lloyd, CFP ^®

Lloyds Intrepid Wealth Management

1330 Lake Robbins Dr., Suite 560

The Woodlands, TX  77380

281-547-7542

Chris.Lloyd@lloydsintrepid.com

www.lloydsintrepid.com

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