Middle Eastern conflict stirs the market; the consensus expectation of "oil prices rising and gold prices increasing" is very strong

Securities Times Reporter Pei Lirui and Wang Jun

The Middle East “powder keg” has been ignited again. On February 28 (local time), the U.S. and Israel launched attacks on multiple targets inside Iran, reigniting the Iran-Israel conflict. According to Xinhua News Agency, multiple Iranian media confirmed on March 1 that Iran’s Supreme Leader Khamenei was killed in the U.S. and Israel’s attacks on Iran. The Iranian government announced a 40-day nationwide mourning period. U.S. President Trump posted on social media on February 28, stating that the bombings by the U.S. and Israel on Iran would continue.

According to Xinhua News Agency, on the evening of February 28 (local time), the Iranian Islamic Revolutionary Guard Corps announced a ban on any ships passing through the Strait of Hormuz. Tassnim News Agency reported that with the halt of traffic of oil tankers and other ships through the Strait of Hormuz, the strait has effectively been closed. In the stock markets, affected by the conflict, the Saudi Arabia TASI index opened down more than 4% on March 1, but then continued to rise. As of press time, the index was down about 2%. Iran and Kuwait stock markets also announced trading suspensions.

“I participated in various conference calls all weekend,” a senior fund manager in Shanghai told Securities Times. “Since last Friday afternoon, as the situation grew more tense, analyst roadshows, discussions among peers, and client inquiries never stopped. How much did Brent crude see? Can gold still be chased? Will risk assets be impacted? We all need to have a basic judgment to respond to Monday’s market.” Several fund companies believe that this conflict not only exacerbates the fragility of global energy supply but also adds significant uncertainty to the commodities and risk assets markets this year.

What impact does this geopolitical conflict have on the A-share market? Huajin Securities’ latest view states that the logic of a slow bull market driven by rising technology and cyclical profits, active policies, and high-quality development will not be affected. Meanwhile, the geopolitical conflict may further boost sentiment in the cyclical sector, making it difficult for risk appetite in the A-share market to decline significantly.

Geopolitical tensions amplify resilience in oil and gas sectors

In fact, before this conflict erupted, market concerns about geopolitical risks had already been brewing, and the oil and gas sectors had been quietly moving.

Since the beginning of the year, amid tight supply and demand, escalating geopolitical conflicts, and insufficient long-term capital expenditure, the oil and gas sector has continued to strengthen. ICE Brent crude oil prices have risen from about $60 per barrel at the end of last year to over $73 recently, an increase of more than 20% this year. Supported by this, the Dow Jones U.S. Oil & Gas Exploration & Production Index has risen 18.43% year-to-date, and the CSI Oil & Gas Resources Index in China has surged 33.07%, with stocks like Tongyuan Petroleum and QianNeng Hengxin doubling in price.

Regarding this strong performance of the oil and gas sector, Guotai Fund believes that geopolitical factors are a key catalyst for rising oil prices. Tensions in the Middle East and increased shipping risks in the Strait of Hormuz have led the market to continuously price in geopolitical risk premiums, further boosting oil price expectations and making crude oil the most resilient commodity to price increases.

However, a senior fund manager in Shanghai believes that crude oil has performed strongly since the liquidity turmoil in precious metals in February, already implying expectations of conflict outbreak. Considering Trump’s “Make America Great Again” (MAGA) focus on domestic issues, the probability of long-term U.S. involvement in conflicts is limited. If the conflict remains limited, referencing the situation in 2025, crude oil may pulse up to $80 per barrel in the short term, with momentum gradually weakening afterward.

“Another transmission chain is shipping, especially oil transportation,” a resource-heavy fund manager told Securities Times. “The Strait of Hormuz, controlled by Iran, is the world’s most critical oil transit chokepoint. Any military action could block the route or cause shipping insurance rates to soar, directly benefiting the shipping sector. Spot freight rates for related shipping companies could spike in the short term. But at the same time, industries highly dependent on oil costs, like aviation and chemicals, will face huge pressures, potentially creating a ‘fire and ice’ situation.”

Data from the Baltic Exchange shows that the freight index for ultra-large oil tankers on the Middle East-China TD3C route has risen nearly 26 points to WS163.28 in the past week. The equivalent daily charter rate for this route is $151,200, up 172% from $55,500 in early January, indicating a clear market sentiment shift toward “short squeeze” upward movement.

Looking longer-term, Guotai Fund believes that both short-term trading opportunities and medium-term allocation value in the oil and gas sector are significant. In the short term, uncertainties from geopolitical conflicts, OPEC+ production cuts, and fluctuations in oil inventories will continue to catalyze the market, with ample price elasticity. In the medium term, as oil prices gradually rise, the profitability and cash flow stability of domestic state-owned oil companies will improve, coupled with high dividend yields, making them attractive in a falling interest rate environment. Long-term, energy transition is a gradual process; traditional energy remains the core of the global energy system, with long-term rigid demand for oil and gas. Industry leaders with resource advantages, cost advantages, and global deployment can continue to generate stable returns, making them suitable for long-term asset allocation.

COFCO Futures’ latest view states that the core uncertainty of this conflict lies in the intensity of Iran’s retaliation. The attack and death of Khamenei and several military leaders could lead to more intense retaliation, increasing uncertainty in Middle East geopolitics. Iran’s retaliation will impact supply and demand fundamentals through direct supply disruptions, transportation security, and market sentiment. COFCO Futures expects that geopolitical risk premiums will quickly be priced into oil, potentially pushing Brent crude oil up by about $10 per barrel in the short term.

Gold’s safe-haven value heats up again

Apart from crude oil, gold, a safe-haven asset, has gradually resumed its upward trend after significant volatility. Last Friday (February 27), amid tense Middle East tensions, COMEX gold rose nearly 2%, approaching the $5,300 per ounce level.

HuaAn Fund believes that on one hand, the ongoing tension in the Middle East has sharply increased geopolitical risks, prompting safe-haven capital to flow into gold; on the other hand, the U.S. ruling that previous tariffs imposed globally are illegal and void will reduce U.S. fiscal revenue, heighten concerns over U.S. debt, and ease domestic inflation, opening room for the Federal Reserve to cut interest rates. Both factors are likely to benefit gold.

“This escalation of geopolitical conflict is the immediate trigger for the short-term rise in gold prices,” said the senior resource-heavy fund manager. “The rapid increase in geopolitical risks has tested gold’s status as a traditional safe-haven asset, attracting a large influx of safety-seeking funds. However, this rise cannot be simply attributed to safe-haven demand alone.”

He further analyzed that the core driver is that extreme events like war amplify market concerns over long-term structural issues. For example, behind the years-long gold-buying spree by central banks is the grand narrative of “de-dollarization” and diversification of reserve assets; similarly, the high U.S. fiscal deficit and debt ceiling issues are essentially a long-term depletion of sovereign credit currency credibility. Geopolitical conflicts serve as a reminder, prompting investors to reassess gold’s unique value in hedging macro uncertainties and credit risks. Therefore, even if short-term conflicts ease, these long-term fundamentals will continue to support gold’s strategic allocation value.

In the medium to long term, HuaAn Fund believes that the macro structural factors underpinning gold’s value have not fundamentally reversed, including ongoing central bank gold purchases under “de-dollarization,” the erosion of the dollar’s long-term credibility due to U.S. fiscal policies, and systemic risks from fragmented global geopolitical landscapes. Gold’s role in hedging “risks of collapse of the international order” and “sovereign credit currency risks” remains prominent.

“Looking ahead, after a period of oscillation and adjustment, gold prices are gradually stabilizing, with volatility significantly decreasing. The strategic allocation value is becoming clearer, and it is advisable to participate in gold investment with a prudent asset allocation approach,” HuaAn Fund stated.

Open Source Securities notes that in the short term, due to market expectations of possible military actions, gold prices have already risen. Based on experiences from March 2003 and June 2025, after military actions, short-term bullish momentum tends to exhaust, and gold prices may face downward pressure. However, from a medium- to long-term perspective, gold prices have shown significant upward trends afterward.

Beware of inflation risks and industry pressures

Behind the resource price rally, the negative impacts of geopolitical conflicts are also raising deeper market concerns.

Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, stated that Iran is a major global oil producer, and its attack could cause supply-demand imbalances in the international crude oil market, leading to sharp increases in international oil prices. Rising oil prices will directly increase production costs for chemical and other industries that rely on oil as raw material, squeezing profit margins. The international aviation industry will also be significantly affected. Currently, Israel and Iran have closed their airspace, further impacting international aviation.

Compared to direct industry impacts, some market participants are more worried about macro chain reactions caused by rising oil prices.

“Geopolitical conflicts have a direct impact on oil prices, but investors should be more alert to secondary effects, namely the return of inflation,” cautioned a public fund manager in Shanghai. “Energy is the mother of inflation. Sustained high oil prices will directly push up the global inflation rate, potentially disrupting the Fed’s and other major central banks’ rate-cutting plans. If rate cut expectations are broken or delayed, it could significantly suppress valuations of global risk assets.”

A FOF fund manager also analyzed from an asset allocation perspective: “We need to closely monitor the rising risk of global energy prices in 2026. If energy prices continue to surge, the impact of global re-inflation on overseas interest rates could trigger new changes in global asset pricing. Based on our current and 2026 economic and market outlooks, we are gradually increasing allocations to domestic demand and cyclical leading stocks to enhance portfolio balance.”