Trump doesn’t want a “quick fix”! Global markets face

By Long Yue

Source: Wall Street CN

The Strait of Hormuz has not been “physically blocked”; the sharp drop in shipping stems from traders’ voluntary risk aversion, but a jump in oil prices appears inevitable. Goldman Sachs issues a stark warning: if the conflict evolves into a “protracted war” similar to 2022, high fiscal spending combined with energy inflation will force the Federal Reserve to keep interest rates elevated amid slowing growth. In that scenario, the U.S. Treasury yield curve will flatten at an accelerated pace, U.S. equities’ cyclical sectors will come under pressure, and the **U.S. dollar and Japanese yen** will be the only safe havens for capital.

“Trump vows no ceasefire until goals are met! Iran says it will decide when the war ends.” The latest tit-for-tat statements from the U.S. and Iran have completely shattered market expectations of a “quick resolution.”

According to the latest report from CCTV News, U.S. President Donald Trump said in a video address on March 1 local time that the United States and Israel will continue military operations against Iran until all objectives are achieved. Iranian Foreign Minister Seyed Abbas Araghchi stated the same day that Iran will decide when and how this war of aggression imposed by the U.S. and Israel will end.

Trump’s latest remarks represent a clear escalation from earlier statements. He previously claimed Iran “is a major power” and that military operations could take about four weeks to complete, “or shorter.” On the battlefield, Trump said the U.S. military has sunk nine Iranian vessels and “essentially destroyed Iran’s naval headquarters.” The U.S. military announced it had destroyed the headquarters of Iran’s Islamic Revolutionary Guard Corps (IRGC) and denied that the USS Abraham Lincoln aircraft carrier was hit by Iran. The IRGC, for its part, claimed its retaliatory strikes “have caused 560 U.S. military casualties” and shot down more than 20 U.S. and Israeli drones.

As the conflict’s timeline lengthens, Wall Street’s pricing logic has shifted abruptly. In its latest research report, Goldman Sachs warns that the **duration of the conflict**—rather than its outbreak itself—has become the core variable determining the trajectory of crude oil, gold, and U.S. equities.

## Strait of Hormuz: Voluntary Avoidance, Not Forced Closure

Since the conflict erupted, global attention has been fixated on the “chokepoint” of the crude oil market—the Strait of Hormuz. This narrow waterway south of Iran handles roughly **20% of global oil shipments**.

Bloomberg Opinion columnist Javier Blas notes that despite extreme market panic, a critical fact must be clarified: the shipping disruption is a result of “commercial fear,” not a “physical blockade.” From a macroeconomic perspective, however, the energy market picture has not spiraled out of control.

“Iran has not weaponized oil, nor has it closed the strait. The U.S. and Israel have not attacked Iran’s oil infrastructure,” Blas analyzes. The current sharp drop in shipping volumes is more of a “self-imposed pause” by the market. At this stage, he describes the situation in two layers:

- **Shipping volumes have fallen sharply**: He writes that maritime traffic “has dropped dramatically,” but a small number of tankers “continue to pass safely overnight.”

- **No factual closure of the strait**: “Despite sensational claims on social media, Iran has not closed the strait.”

Blas further adds that the partial suspension is more like a “self-imposed pause”: on one hand, insurers have withdrawn coverage; on the other, the industry has paused operations “in response to requests from the U.S. Navy in the early hours of the conflict.” He also points to a buffer from pre-strike shipments: “Crude oil exports from the Persian Gulf in February were nearly 10% higher than the previous month,” with many cargoes already leaving the region. But he warns that if Washington cannot quickly reassure shipping companies of the strait’s safety, the “self-imposed pause” could evolve into a genuine supply disruption.

Blas believes that when markets reopen, oil prices could jump **10%–15%**, with Brent crude potentially rising above $80 per barrel. However, thanks to the U.S. shale oil revolution and currently ample available oil supplies, the global economy may not suffer severe damage.

The two things markets fear most—systematic attacks on energy infrastructure and forced cuts to tanker routes—“have not happened, at least not yet.”

## Goldman Sachs: Conflict Duration Determines Asset Trajectory; 2022 Playbook Could Repeat

If the Strait of Hormuz dictates the magnitude of near-term price spikes, the **duration** of the conflict determines the paradigm of asset pricing. Goldman Sachs’ strategy team notes in its latest report that only when crude oil supply disruptions shift from “temporary spikes” to “persistent shocks” will the market face substantial damage.

Goldman Sachs specifically cautions investors against the return of the “2022 energy shock playbook,” which is far more dangerous than a simple rise in oil prices: the current macro environment bears striking similarities to the early stages of the 2022 Russia-Ukraine conflict, and is even more intractable.

- **Stronger inflation stickiness**: Unlike a few years ago, underlying inflation dynamics have undergone a structural shift.

- **Dual drivers of fiscal spending and AI investment**: Elevated U.S. fiscal spending, combined with massive demand for AI infrastructure investment, has already kept inflation expectations high.

- **Central bank dilemma**: A prolonged “cost-push” energy inflation would lock in the Fed’s room to cut rates. Goldman Sachs warns that if supply shocks persist, markets will lose confidence in the medium-term interest rate trajectory, leading to a sharp rise in **rate volatility** rather than simple rate moves.

### Asset Class Outlook (Goldman Sachs)

#### Crude Oil: Worst Case = Sustained Full Disruption of Hormuz Flows

Goldman Sachs states that the “most destructive” scenario in its commodities team’s key risk assessments is a **sustained full disruption** of oil flows through the Strait of Hormuz. The report notes that “these disruptions have already begun,” but the core question is “how long they might last.”

This aligns with Bloomberg’s observation: even if oil prices gap higher at the open, what truly determines whether volatility persists remains the restoration of strait traffic, insurance, and shipping, and whether energy facilities are further targeted.

#### Gold, Silver, Copper: “Another 10% Upside” Scenario

The report mentions using the GSTOT framework to assess spillover effects from commodity shocks and presents a scenario where gold, silver, copper, and crude oil each rise another **10%**. Goldman Sachs emphasizes that if commodity shocks become “more persistent,” distributional effects could “reemerge” in markets.

For gold, silver, and copper, the bank highlights two key points:

- Once commodity gains shift from “brief spikes” to “sustainable upward moves,” asset pricing will move beyond simple risk aversion to a more complex mix of “inflation–growth–distribution.”

- In this environment, market distributions will widen, and trading volatility and hedging demand will struggle to return to pre-conflict levels.

#### U.S. Equities: Mostly Negative; Severe Consequences Require Extreme, Persistent Oil Supply Disruptions

Goldman Sachs writes that for equities and credit, such risks and growth shocks are “clearly negative”; however, only “severe and persistent” oil supply disruptions (citing scenarios like 1990 or 2022) will have a larger impact on the global growth outlook.

At the sector and style level, the bank outlines a clear divergence:

- **Cyclical industries** may face pressure, especially consumer-facing sectors (including airlines) and heavy industrial oil users.

- Energy producers will be relatively favored.

- Some cyclical sectors and markets that rallied sharply early in the year may be more vulnerable to “position adjustments.”

#### Foreign Exchange: USD and JPY as Preferred Safe Havens

In the FX market, negative supply shocks and growth risks will initially dominate the distributional effects of terms of trade (ToT). The report states: “In an environment of risk aversion and rising oil prices, the **U.S. dollar and Japanese yen** may become the preferred safe-haven assets.”

#### U.S. Treasuries: Supply-Driven Oil Rises May Lead to “Harder Front-End Cuts, Flatter Curve”

In rates markets, Goldman Sachs emphasizes the “tug-of-war between rising inflation and falling growth.” Its past research shows that a 10% rise in oil prices typically pushes 2-year breakeven inflation rates up by **15–20 bps**, with a smaller impact on 2-year nominal rates of about **5–10 bps**.

Of greater interest to traders is curve shape. Goldman Sachs writes that supply shocks more often lead to a “flatter front end” of the curve: inflation limits near-term rate-cutting room, while growth risks anchor longer tenors. Under this logic, the recent dynamic of the U.S. curve—“flatter front end, 5-year segment relatively outperforming”—may persist initially.

The bank also warns that if markets begin pricing in a higher probability of “sustained conflict,” rising volatility could pressure trades like swap spreads; overall, the front end may face higher interest rate volatility.

#### Europe Faces Hawkish Risks

In Europe, while high energy prices represent a negative terms-of-trade shock, German fiscal expansion is feeding into the real economy.

Goldman Sachs argues: “This combination creates hawkish risks at the euro front end, although consistent with historical relationships, it may flatten the curve, as negative risk sentiment helps anchor longer-term yields.”

Given lessons from the 2022 energy shock, prolonged cost-push energy inflation, paired with elevated fiscal spending, could push inflation expectations higher. This makes it harder for markets to form confident medium-term rate views, instead signaling higher interest rate volatility.

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