BCA warns 50% to 87% chance of major oil shock as Hormuz disruption threatens 20% of global supply

Investors are being told to stay cautious. The latest warning comes as tensions linked to Iran continue to rise. BCA Research says this is not the time to bet against oil. It is also not the time to rush back into equities.

50% to 87% probability of oil supply shock as 20% of global oil faces disruption

Matt Gertken, chief geopolitical strategist at BCA Research, says markets may be underestimating the scale of the conflict. According to the firm’s analysis, there is a 50% to 87% weighted probability of a major oil supply shock.

The Strait of Hormuz is now largely closed to traffic. Around 20% of global oil supply moves through this route. OPEC accounts for about 31% of total global oil production. Any sustained disruption could trigger one of the largest energy shocks in modern history.

BCA believes the US and Iran are now too deeply involved to avoid serious economic damage. The full impact on global energy supply may not yet be visible in markets.

Risk off trades favored as oil surge continues and equities remain vulnerable

Gertken says it is too soon to sell the surge in oil or buy the dip in stocks. He advises sticking with risk off trades. The firm argues that financial markets are underrating the situation.

Although Iran’s immediate response has been described as fairly ineffective, it still has asymmetric capabilities. It also has strong incentives to increase the economic cost of the conflict. That could mean further threats to regional infrastructure and shipping routes.

Energy remains the main transmission channel to the global economy. If oil prices stay elevated, Europe and China could face higher pressure due to their import dependence.

Defensive positioning continues as oil trade stays active

BCA’s strategy reflects this cautious outlook. The firm has been overweight US Treasuries. It has favored US equities over Europe and China. It has also leaned toward defensive sectors.

The long oil trade remains in place. BCA plans to hold that position until it is confident that Iran can no longer pose serious threats to energy infrastructure.

A shift back into international equities could happen later. That would depend on avoiding a major oil shock. For now, the message is clear. The geopolitical risk is still unfolding. The economic consequences may be deeper than markets currently expect.