Market Report.
📈 The inflationary shock that President Trump insisted would not materialise is now unfolding.
✈️ Last week, we warned that airlines would be among the first to suffer, given that more than 50% of Europe’s jet fuel flows through the Strait of Hormuz. Asian carriers face the same structural vulnerability. Once again, our projections appear to have anticipated the current scenario.
📉 IAG has fallen by more than 20% in a single week since the conflict began.
🛢️ Jet fuel prices have surged to record highs, equivalent to approximately $190 per barrel, placing severe pressure on the aviation industry and, by extension, the broader economy.
⚠️ However, what may lie ahead in the coming days and weeks could prove even more severe. Spot Brent crude has risen by more than 60% since the US and Israeli intervention in Iran.
🚢 The solution proposed by the Trump administration — offering maritime insurance to companies transiting the Strait of Hormuz — may ultimately prove insufficient. We questioned last week whether the US International Development Finance Corporation (DFC) possesses the financial capacity and operational expertise to absorb such large‑scale risks. It is a complex and potentially costly undertaking for a federal agency of that size.
⚓ Moreover, the naval escort proposal does not appear to have fully reassured elements within the US Navy, whose personnel would be expected to risk their lives protecting private commercial vessels rather than directly defending American citizens.
📡 Shipping tracker data from Marine Traffic shows that tankers are not attempting to transit the Strait of Hormuz, likely due to the ongoing conflict and Iran’s aggressive use of ordnance in the region.
🗣️ President Trump announced that the Iranian navy had been annihilated. However, we are in the midst of an active conflict, and it is inevitable that war propaganda will emerge from both sides.
🚢 For example, reports emerged regarding the sinking of the Iranian frigate IRIS Dena in the Indian Ocean, south of Sri Lanka, shortly after it had taken part in multinational naval exercises involving several countries, including the United States.
⚖️ According to those reports, the frigate — like the other participating vessels — was not carrying live ammunition at the time. I am not a military expert, but publicly announcing the destruction of an unarmed vessel does not appear, at least on the surface, to be a particularly heroic action.
💣 Even if that claim of annihilation of the Iranian fleet were accurate, the core issue would remain the potential mining of the Strait and the broader firepower capabilities that the Iranian military would still possess. In other words, naval destruction alone would not necessarily eliminate Iran’s ability to disrupt maritime traffic or project force in the region.
🛢️ President Trump has acknowledged the short-term pain of high oil prices, saying it is a “very small price to pay” for the conflict. However, the duration of the Strait closure remains uncertain.
⏳ U.S. Energy Secretary Chris Wright expressed cautious optimism that traffic through the Strait could resume in a “few weeks” rather than months, after the U.S. destroyed Iran’s ability to threaten tankers. Unfortunately, we have heard similar assessments before. For example, when US Secretary of Defense Donald Rumsfeld suggested that the Iraq War would last only a matter of weeks. Yet, years later, American troops continued to face attacks in Iraqi territory under US military presence.
🌍 The geopolitical turmoil is testing global diplomacy, with Trump set to meet with Chinese President Xi Jinping and the G7 countries scheduled to hold an emergency meeting to address the Middle East crisis.
🇨🇳 However, Beijing has not confirmed the exact dates for Trump’s visit to China, scheduled for March 31 to April 2. Some analysts have raised doubts about whether the trip will happen as planned, given the recent U.S.-Israeli strikes on Iran.
💼 The upcoming meeting between U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng is expected to discuss business deals the two presidents could agree to.
🔎 But let’s not be fooled. The attack on Iran is also being seen as the US and Israel’s attack on one of China’s main strategic and energy partners. China is Iran’s largest trade partner, importing 850,000-1.1 million barrels of Iranian oil per day in 2024, accounting for 60-90% of Iran’s oil exports.
🔄 China has high substitutability for Iranian oil, which can be replaced by increased imports from Russia, Saudi Arabia, and West Africa. However, Iran’s role as a land corridor to the Middle East, Central Asia, and South Asia makes it strategically irreplaceable in the near-term for China’s Belt and Road Initiative.
🏭 China’s domestic oil production is expected to stabilize above 200 million tons annually by 2035, but its import dependence will remain above 70% due to rising consumption.
🤝 On the other hand, US alliances could be weakened by the consequences of this war. The Gulf countries have suffered heavy attacks, and the US has lost expensive radars, missile launchers, and troops in the region.
💱 Arabia Saudí vende petróleo a China en yuanes desde 2023, el bloque BRICS se expande con potencias árabes, y China tiene CIPS, su alternativa al SWIFT. Todo esto ocurrió antes de que cayera la primera bomba sobre Irán.
🇫🇷 France, the current G7 president, has called an emergency meeting of G7 finance ministers and central bank governors to address the situation in the Middle East and assess the impact on oil and gas markets.
🇪🇸 The dispute between the U.S. and Spain over military base access has led to threats of trade cuts, straining G7 unity and above all, of the EU. European leaders have rallied around Spain to protect Europe’s sovereignty.
🇫🇷 Macron seems to understand that this war is seriously damaging Europe, and US partners have launched it without any prior consideration.
⚖️ France is walking a high-stakes line, condemning the U.S.-Israel attacks as illegal while also pledging to strengthen its nuclear arsenal to protect Europe. The prospect of higher energy prices impacting French inflation is also a concern.
🇩🇪 Germany has taken a more diplomatic approach, but Bundesbank’s Nagel warns the war is a burden on the global economy. U.K. PM Starmer has faced criticism for his cautious response, leading to a rebuke from former U.S. President Trump.
🏦 Now comes the central banks’ dilemma:
📊 The escalating crisis in the Middle East has dramatically changed the outlook for global central banks, posing a difficult trade-off between supporting growth and countering inflation.
🏭 Central banks in manufacturing-dependent economies like South Korea and Japan are under pressure, as the crisis undermines global trade, stable markets, and cheap raw material costs – all crucial for their economies.
🇯🇵 The Bank of Japan has less room to pause rate hikes, as inflation has exceeded its 2% target for nearly 4 years, despite the risk of a huge growth hit from sustained high oil prices.
🇪🇺 ECB board member Isabel Schnabel said the European Central Bank’s policy remains in a “good place” for now, but the geopolitical volatility from the Iran conflict creates upside risks to inflation. Financial investors have increased bets on an ECB interest rate hike in 2026, as the war-induced spike in energy costs is likely to feed through to consumer prices quickly, lifting inflation above the ECB’s 2% target.
🌐 The IMF Managing Director has urged policymakers to “think of the unthinkable and prepare for it”, as the resilience of the global economy is tested by the new conflict in the Middle East.
💧 Keys to this War: Water.
🚰 Market is not pricing in the potential for widespread disruption to the Gulf’s water supply, which could have even more severe economic and humanitarian implications than the disruption to oil exports.
🏜️ The Gulf states, particularly Saudi Arabia, Kuwait, and the UAE, rely heavily on desalination plants for their freshwater supply, with some countries getting up to 90% of their drinking water from these facilities.
💥 On March 2, Iranian strikes on the Dubai port area caused collateral damage to some desalination facilities, but did not directly target them, demonstrating a level of restraint.
🔥 However, the U.S. then reportedly destroyed a desalination plant on Iran’s Qeshm Island, which Iran condemned as a “blatant and desperate crime” that set a dangerous precedent.
🚁 In response, Iran has now carried out a drone attack that directly targeted a desalination plant in Bahrain, marking the first time a Gulf nation has reported such a direct attack on its water infrastructure.
🧩 This escalation is particularly concerning because Iran’s command structure has shifted to a decentralized “Mosaic Defense” doctrine, with 31 autonomous provincial units now having independent targeting authority, increasing unpredictability.
⚔️ Asymmetric Warfare: The Invincible versus the Inexhaustible.
🧠 Spanish geopolitical analyst Francisco José Fernández‑Cruz has highlighted one of the most compelling dynamics of this war: productive asymmetry.
⚙️ According to his assessment, the conflict may ultimately hinge not only on battlefield superiority, but on the structural imbalance between technologically advanced, high‑cost defence systems and the mass production of low‑cost offensive capabilities.
🛡️ In this framing, one side may appear militarily “invincible” in terms of precision, sophistication and air‑defence technology, while the other may prove “inexhaustible” due to its ability to produce large quantities of inexpensive drones and munitions over a prolonged period.
⏳ The decisive factor, therefore, may not be who strikes harder — but who can endure longer.
🇺🇸 Francisco characterises the current war as a conflict likely to be determined by technological superiority on one side — the United States and Israel — versus the endurance and resilience capacity of the other — Iran.
🏭 He argues that the US defence industrial base is showing signs of strain. In particular, the production capacity and cost structure of interceptor missiles reveal a significant asymmetry when compared with Iran’s large‑scale, low‑cost drone manufacturing.
📦 Current estimates suggest annual production of roughly 600 Patriot PAC‑3 interceptors and around 95 THAAD interceptors, contrasted with the potential production of thousands of low‑cost drones per month by Iran.
🛰️ Intelligence reports cited in the press indicate that Iran may be capable of manufacturing thousands of drones monthly, particularly models such as the Shahed‑136 and its variants.
🏗️ A technical study of the Alabuga facility in Russia, which manufactures Shahed drones under Iranian licence, estimates 2024 production at approximately 4,700–5,200 units per year — equivalent to roughly 400–440 drones per month from that single facility alone.
🏢 Meanwhile, the United States and Lockheed Martin have reportedly agreed on a plan to expand PAC‑3 MSE production capacity to around 2,000 units per year, although this ramp‑up could take up to seven years, starting from current output levels of roughly 600 annually.
⚖️ The key issue, therefore, may be this: if Iran can sustain a prolonged conflict, the defensive capabilities of Gulf states and Israel — heavily reliant on US interceptor production — could face significant strain or even risk depletion.
Market view.
🛢️ Spot Brent crude began the week with an aggressive rally, briefly approaching $120 per barrel, before pulling back to around $107 per barrel.
🛢️ WTI crude is currently trading above $103 per barrel.
📉 US equity futures opened sharply lower. E‑mini S&P 500 futures fell below the 6,600‑point level in recent hours before rebounding slightly to around 6,650 points. This marks a significant break below the key 6,800‑point support level, which had held throughout the previous week despite mounting global tensions.
📉 Nasdaq 100 futures also suffered heavy losses, breaking below 24,450 points and currently trading near 24,270.
💲 The US dollar continues to strengthen. The DXY index climbed towards 99.70, pushing EUR/USD down to 1.1500, from where it has modestly rebounded to approximately 1.1530.
🇪🇺 In Europe, futures are also opening with sharp downside gaps.
🇩🇪 DAX 40 futures have fallen below the 23,000‑point level, currently trading around 22,975.
🇪🇺 Euro Stoxx 50 futures, which had posted fresh record highs only days ago, dropped below 5,550 points before recovering slightly to around 5,565.
🥇 Gold futures remain largely sideways, trading near $5,100 per ounce.
₿ Finally, Bitcoin has slipped back below $68,500, despite last week’s gains, and is currently trading around $67,720.
