Iran: What Could Go Wrong
- Steve Korn, CFA and Frank Byrd, CFA
- 2 days ago
- 5 min read
"You can't print molecules."
- Jeff Currie, The Carlyle Group
The Jugular Vein
Three weeks ago, most of us couldn’t find the Strait of Hormuz on a map. It is now the most important place on the planet. It is the choke point through which a fifth of the world’s oil must flow. Markets appear to be pricing in a quick resolution that may not come. We believe there's a timely way to position for both outcomes.
Iran has said, “None shall pass." The Strait is, for practical purposes, closed. Only around 13 ships are making it through the Strait per day, down from an average 153 ships per day before the war.
No Real Bypass
Saudi Arabia and the UAE have pipelines that can route some crude oil around the Strait, perhaps up to 5.5 million barrels per day combined. Unfortunately, this only offsets a quarter of the impacted flow – and only for crude oil. There is no bypass for refined products such as diesel or jet fuel nor for LNG, sulfur, or helium (critical for semiconductor manufacturing). When the Strait is blocked, they're literally cut off. There's no workaround. One source of optimism is that the International Energy Agency (IEA) has authorized the largest emergency reserve release in its history. This helps. But just a little. It only amounts to 4 weeks’ worth of disrupted supply.
Not Just Oil at Risk
Making matters worse, Iran struck the world's largest liquified natural gas (LNG) terminal in Qatar, causing enough severe damage to shutter ~4% of global capacity for three to five years. Iran has also struck refineries and gas facilities in Saudi Arabia, the UAE, Kuwait, and Bahrain. LNG prices have risen ~60%, and European natural gas prices have roughly doubled. There have even been isolated incidents of strikes on desalination plants that supply the vast majority of drinking water in the Gulf. This is a potentially catastrophic risk worth watching closely. Even if the Strait reopens tomorrow, some of what's been broken will stay broken for years. The overall size of the damage, as of today, is likely manageable. If this conflict escalates, however, countries will end up short of the raw materials needed to keep their lights on and their people fed.
Three Potential Paths
As Fielder’s research team sees it, these events could proceed down three potential paths:
It ends soon.
The Strait partially reopens without major disruption, oil prices drop significantly, and markets rebound sharply. Even though it takes several years to bring damaged LNG and refinery capacity back online, the acute crisis passes.
It drags on for one to three months.
This is the scenario we're watching most closely. Oil would stay elevated. The global economy would start feeling the real pinch — not just from energy, but from the cascade of missing inputs, such as sulfur, fertilizers, industrial chemicals, and refined products. This would be felt acutely by the world's largest energy importers, such as China, Japan, South Korea, and Taiwan. If these shortages lead to inflation, the Fed cannot cut rates. Which would hurt even worse if, at the same time, growth began slowing down. That's stagflation, and it's a hard place to be.
It goes on much longer.
Oil prices would go materially higher — we won't even hazard a guess by how much. The odds of a global recession would rise dramatically. Markets would be under severe pressure in that scenario. We fear that markets may not be fully pricing in this risk.
A Wider Range of Outcomes
Despite the price spikes in oil and gas, the S&P 500 is off only about 5%. This disconnect surprises us. During last year’s tariff surprise, US markets sold off over 15% — and then ripped back up after the administration reversed course. Markets have come to expect that Trump will blink. They appear to be pricing the same playbook here. Maybe they're right. But tariffs can be reversed with a phone call. The Strait of Hormuz can't be reopened with a tweet. If Iran manages to keep the Strait closed, this administration may not have the same off-ramp it had last April.
If this ends quickly, markets go higher. We want to be there for that and breathe through the volatility. Fielder portfolios are generally designed to include meaningful energy exposure and assets non-correlated with equity markets.
Hedging
We believe that it may make sense to consider employing a "tail hedge" strategy. This type of hedge can pay off in the event of a sudden and severe market drawdown. Such hedges don’t always work as planned, and they’re not a “free lunch” - though sometimes they’re an attractively priced lunch. When markets are relatively calm (as the S&P 500 appears today), yet fundamentals suggest a widening range of potential outcomes (as we believe this war does), the price of a tail hedge can be compelling. Not only can a tail hedge potentially provide a good defense, but also a good offense if it generates profits in a downturn that fund the purchase of stocks at cheaper prices. The downside is that the cost of the hedge reduces returns if markets don't decline meaningfully.
We'd welcome the chance to walk through how your current positioning maps against the three scenarios we've described.
Yours in the Field,
Steve Korn, CFA Frank Byrd, CFA
DISCLAIMERS:
The views expressed herein are as of March 25, 2026 and are subject to change without notice. Fielder Capital Group LLC (Fielder) is under no obligation to update this document. References to specific investment strategies, including hedging approaches, are for illustrative and educational purposes and are not guarantees of future results. There can be no assurance that the investments or strategies discussed in this document will prove profitable. Any strategy may lose money. Investing involves the risk of loss that clients must be prepared to bear. This presentation, including any commentary, charts, tables and graphs therein, is for informational purposes only and does not constitute investment advice or any form of recommendation, and should not be construed as such. Certain information contained herein has been obtained from third-party sources believed to be reliable, but Fielder makes no express warranty as to its completeness or accuracy. This presentation does not constitute a solicitation to buy or sell any instrument or to engage in any trading or investment activity or strategy. This presentation does not provide advice concerning the suitability or value of any investment or investment strategy for a particular investor, and certain investments referenced in this presentation may be unsuitable for certain investors. For individualized investment advice, consult with your adviser. Fielder or its employees may have an economic interest in securities mentioned herein. Fielder does not provide accounting or legal advice, nor will we prepare any accounting or legal documents. Always consult with your own attorney, CPA, or insurance agent for final recommendations and before changing or implementing any of Fielder’s tax, estate planning, or financial recommendations. Any projections, market outlooks or estimates in this document are forward-looking statements concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Fielder is a registered investment adviser, yet registration does not imply government endorsement or that the adviser has attained a certain level of skill or training. Fielder may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For additional information about Fielder, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available at www.adviserinfo.sec.gov. This document is intended solely for the recipient and should not be redistributed without Fielder's consent.
