Guojin Securities: What is the impact of Middle East conflicts on commodity markets and physical assets?

On February 28, the United States launched military operations against Iran, leading to a full-scale conflict in the Middle East. Since then, global commodity markets, represented by oil and gas, have experienced intense volatility. The status of shipping through the Strait of Hormuz and the energy infrastructure in the Middle East have become focal points of global attention.

What are the impacts of this conflict on the global commodity markets? Which sectors or opportunities might see structural changes? This article shares insights with you.

Guojin Research provides the latest analysis on how the Middle East conflict affects commodity markets and physical assets, outlining investment opportunities in the market!

Impact of Middle East Conflict on Commodities

1. How will this conflict influence expectations for overseas inflation and interest rates?

This conflict among the US, Israel, and Iran is unlikely to trigger the sharp inflation and interest rate hikes seen during the Russia-Ukraine conflict in 2022.

Before the Russia-Ukraine conflict erupted in February 2022, US inflation was already under upward pressure due to pandemic-related supply chain disruptions and three rounds of emergency relief checks from the US government. However, current conditions differ significantly from 2022. The US labor market is cooling under AI-driven labor substitution pressures, with the US CPI year-over-year growth rate trending downward since November 2025. Recent US tariff measures have also eased, and over the past three years, inflation in the US service sector has reduced the weight of oil-related components in the basket of goods, energy transition has decreased the elasticity of energy prices, and AI’s impact on employment may make upstream-to-downstream price transmission more difficult.

Based on calculations, a 1% monthly increase in oil prices marginally impacts US CPI year-over-year growth by about 0.14%. Considering that the US CPI YoY growth rate is expected to decline marginally by 0.3% in January 2026, and assuming future monthly oil price increases can exert a marginal upward effect of 0.3% on CPI, then a monthly oil price increase of about 2% would be needed. With Brent crude at $73.20 per barrel, this implies that if oil prices rise to around $90 per barrel by year-end, US CPI YoY growth would turn upward.

Current oil price increases will promote the flow of petrodollars in Middle Eastern oil-producing countries. Recently, US Treasury yields have begun to decline, and the dollar is regaining support through oil prices. Oil prices below $90 are a favorable trading range for related assets.

2. How do we view the outlook for crude oil and shipping, the most directly affected sectors?

Crude Oil:

The oil market has shifted from supply-demand fundamentals to being driven by geopolitical risks. High volatility is expected over the next month. For example, at $71 per barrel, the market has already priced in approximately $8–$10 per barrel of geopolitical risk premium.

We believe current oil prices reflect the sum of fundamental prices plus geopolitical risk premiums. As supply-demand weakens, geopolitical risk premiums increase. In the medium term, we expect the intensity of geopolitical premiums to rise sharply and then gradually subside.

Key focus areas include whether Iran’s retaliation against Israel and the US could escalate into regional war, affecting shipping lanes and infrastructure. Iran’s potential developments include three scenarios:

① Limited US military strikes on Iran that do not impact supply, leading to continued price increases challenging 2025 highs, followed by a retreat.

② US-Iran conflict expanding into full-scale war, causing actual supply disruptions and market fears of a blockade of the Strait of Hormuz, potentially triggering extreme price spikes and pulses. Subsequently, demand collapse and monetary policy shifts could turn the macro sentiment toward recession.

③ US efforts to change Iran’s regime until achieving their goal. If conflict persists long-term, oil prices may remain elevated, embedded with geopolitical risk premiums.

From supply-demand perspectives, absent large-scale ongoing supply losses, inventories are expected to continue building in 2026 based on 2025 levels. Recent weakening in the month spread and narrowing chemical spreads indicate demand has been affected by price rises. Mid-term, the 2026 US midterm elections are a major political focus for Trump; rapid oil price increases could harm his electoral prospects. Further assessment is needed on whether Trump has hedging strategies against oil price rises. Overall, high geopolitical premiums early in the year suggest that in 2026, oil prices will likely show a pattern of rising early and falling later, contrary to supply-demand fundamentals.

Shipping:

The Strait of Hormuz is a critical shipping hub; a blockade would impact shipping as severely as the Red Sea incident affecting container traffic. Higher navigation costs make shipping more profitable for owners, and shippers may rush to secure cargo. Currently, the market is dominated by long-term charterers like COSCO, with oligopolistic advantages supporting higher freight rates. Based on previous conflicts between Israel and Iran, short-term freight rates have room to rise.

In the medium to long term, OPEC’s increased production could substitute Iranian oil, shifting shipping from black ships to compliant vessels, which is also positive for the shipping industry.

3. Besides energy assets, what other sectors might present potential opportunities?

a. Chemical Products

US-Israel strikes on Iran will significantly increase supply and transportation uncertainties, leading to supply contractions in key Iranian chemical products, pushing up prices of global commodities such as methanol, urea, ethylene glycol, and polyethylene. Additionally, the risk to shipping through the Strait of Hormuz could further impact oil, gas, and some agricultural inputs. Coupled with rigid downstream demand, prices are expected to rise.

Iran and Israel are both major suppliers of energy and chemicals, and their geographic positions amplify the impact:

① Both countries may target each other’s refining and chemical facilities, directly affecting production and exports of crude oil and chemicals.

② Closure of the Strait of Hormuz will directly push energy prices higher, and other chemical products transported via the strait will be similarly affected.

③ Due to their strategic importance in energy supply, industries relying on imported products for further processing abroad will be impacted, leading to reduced downstream activity and supply chain issues.

Iran is a key oil and gas producer with significant downstream processing capacity for products like methanol, urea, ethylene glycol, and sulfur. Prolonged conflict could impair domestic chemical production and exports. Iran’s advantage in natural gas-based downstream products (urea, methanol, ethylene glycol, polyethylene) means its export volume remains high. In 2024, China imported 1.47 million tons of methanol, 280,000 tons of ethylene glycol, 1.33 million tons of polyethylene, and 670,000 tons of sulfur from Iran; in 2025, due to regional issues, imports decreased to 810,000 tons, 70,000 tons, 1.13 million tons, and 450,000 tons respectively, with dependency ratios of 0.8%, 0.3%, 2.5%, and 2.2%, still impacting domestic chemical markets.

According to EIA estimates, in 2024, 84% of crude oil and condensate, and 83% of liquefied natural gas transported through the Strait of Hormuz, flowed to Asian markets. Domestic refining operations may be affected, easing some chemical supply-demand tensions temporarily.

b. Domestic Glass Fiber

Demand perspective: Recently, European natural gas prices surged. During the initial outbreak of the Russia-Ukraine conflict in 2022, European glass fiber supply was constrained by high energy prices, leading to partial shutdowns. Rising energy costs threaten the operation and continuity of Europe’s glass fiber industry.

China’s glass fiber exports are expected to increase. During the 2022 spike in European natural gas prices, Chinese exports of glass fiber and products rose significantly. According to Zhuochuang Information, in Q1 2022, China exported 545,500 tons, up 49.7% YoY, worth $952 million, up 49.6%.

Glass fiber has global pricing attributes; Europe’s demand gap is mainly filled by Chinese producers. Estimated data shows that about 55% of domestic demand is met locally, with over 45% from exports. The industry has undergone domestic substitution and now is a major global supplier, making both domestic and foreign demand crucial. The surge in European natural gas prices could boost Chinese glass fiber exports, becoming a key factor in 2026.

Supply-wise: 2023 may be a “low year” for glass fiber supply, with filament prices rising and roving prices expected to differ significantly, offering upside potential. The main reason is insufficient supply of roving: ① Many industry players are investing heavily in AI electronic fabrics, e.g., China National Materials plans to raise 4.48 billion yuan, with 3.14 billion yuan allocated to AI electronic fabrics; international composites plans to invest 1.69 billion yuan in a 36 million meter high-frequency electronic fiber project. ② Platinum price increases raise production costs (since glass fiber levers use platinum-rhodium alloys). As of March 3, platinum spot price was 571 yuan/gram, up 147% YoY.

Risk Warnings

Risks include: geopolitical disturbances exceeding expectations; economic recession abroad; changes in industry and international policies; weaker-than-expected European glass fiber demand; slower industry capacity deployment; large fluctuations in fuel prices; uncertainties in the duration and extent of strait closures; and trade policy uncertainties of related countries.

(Source: Guojin Securities)