美银-欧洲股票策略：2008、2020、2022…还是1979？-European Equity Strategy：2008,2020,2022or 1979-20260327

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EuropeanEquityStrategy

2008,2020,2022…or1979?

UsinghistoricalanalogiestogetasenseofhowthecomplicatedIransituationcouldplayout:withtheconditionsinIranstillfluidandawiderangeofoutcomespossible,lookingatpastepisodescharacterizedbymeaningfulsupplyshocksandcomparingthesimilaritiesanddifferencesallowsustogaugethelikelihoodthateachofthesepastoutcomescanrecurtoday.

Whatthepasthastoteachus.Wethinkthefollowinghistoricalepisodesholdimportantlessonsforthe

currentimbroglio:(1)1979:anoilsupplyshockthatleadstobothhigherinflationandademandshock,with

theinflationaryimpulsepartlyfuelledbyinflationmultipliers(highenergyintensity,wage-priceindexation);(2)2007/08:anoil-pricespikeagainstthebackdropofpre-existingfragilitiesintheUSlabourmarketandcreditmarketsleadstoaspikeininflationconcernsfirst,whichisquicklyovershadowedbydemanddestruction;(3)2020:apandemic-relatedsupplyshockthatneverturnsinflationary,asthelockdown-fuelleddeclineindemandisevenstronger;(4)2022:anotherwar-relatedsupplyshock,butnodemanddestructionduetogrowthsupportfrompost-pandemicreopening,largeexcessconsumersavingsandameaningfulwideningintheUSbudget

deficit;and(5)2025:growthandinflationconcernsinresponsetorisingUStariffs,butneithercomesthroughduetoaswiftpolicyreversal.

WeremainnegativeonEuropeanequitiesevenafteranalmost10%pull-backtodate:marketstodayappeartobepricingamixofthe2022andthe2025outcomes,i.e.ascenariowhereverylittledemand

destructionoccursbutwiththepotentialforhigherinflation.However,wewouldnotethatthefactorsthat

ensuredrobustdemandin2022arenotpresenttoday.Whilea2025-stylescenario,inwhichatimelypolicy

reversalminimisesthegrowthandinflationdamage,isstillpossible,thelongertheconflictlasts,thelargertheriskofdemanddestructionviaasqueezeonconsumers’purchasingpower.Ourglobalstrategistshighlightthatthecurrentepisodehasimportantsimilaritieswith2007/08(aspikeinoilpricesincombinationwithaweak

USlabourmarketandgrowingcredit-marketrisksagainstthebackdropoflowriskpremia),whileourglobaleconomistsarguethatmarketshavesofarmainlyfocusedoninflationrisksandmightbeunderpricing

downsideriskstogrowth.WestaynegativeonEuropeanequities,withafurther10%projecteddownsidefortheStoxx600,followingan8.5%declinefromtheall-timehighinFebruary.

27March2026

EquityStrategyEurope

SebastianRaedler>>InvestmentStrategistMLI(UK)

+442079961749

sebastian.raedler@

ThomasPearce,CFA>>InvestmentStrategist

MLI(UK)

+442079962081

tpearce@

AndreasBruckner>>InvestmentStrategistMLI(UK)

+442079961306

andreas.bruckner@

PMI:PurchasingManagers’Index

ISM:InstituteforSupplyManagement

TWI:trade-weightedIndex

ERP:equityriskpremium

Tradingideasandinvestmentstrategiesdiscussedhereinmaygiverisetosignificantriskandarenotsuitableforallinvestors.

Investorsshouldhaveexperienceinrelevantmarketsandthefinancialresourcestoabsorbanylossesarisingfromapplyingtheseideasorstrategies.

>>Employedbyanon-USaffiliateofBofASandisnotregistered/qualifiedasaresearchanalystundertheFINRArules.Referto"OtherImportantDisclosures"forinformationoncertainBofASecuritiesentitiesthattakeresponsibilityfortheinformationhereininparticularjurisdictions.

BofASecuritiesdoesandseekstodobusinesswithissuerscoveredinitsresearchreports.Asaresult,investors

shouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Refertoimportantdisclosuresonpage71to73.12951940

2EuropeanEquityStrategy|27March2026

BofAGLOBALRESEARCH

2008,2020,2022..or1979?

Mappingoutthehistoricalanalogies:thesituationinIranremainsinfluxwithmanyoutcomesstillpossible.Togetasenseofthedifferentscenariosthatcouldunfold,ithelpstogetasenseofhowsupplyshockshaveplayedoutinthe

pastandhow,inthesepastscenarios,thetwokeyvariablesimpactingmarkets–globalgrowthandinflation–have

beenimpacted.Takingacloselookathowthecurrentepisoderesembles,anddiffersfrom,thesepastshocksalso

allowsustogaugethelikelihoodwithwhicheachofthesepastoutcomescanrecurtoday.Ourmaintake-awaypoint

fromthisanalysisisthatmarketsarestillmostlypricingtheenergyshockfromtheIranwarasacombinationofa

2022-stylescenario(inflationshockwithoutdemanddestruction)anda2025-stylescenario(timelyde-escalation

meanslittledamageforeithergrowthorinflation).Againstthis,ourglobalstrategistsnotethatthecurrentepisodeinmanywaysresembles2007/08(seereport:TheFlowShow,Mar12),whileourglobaleconomistsarguethatmarketsarefocusedmainlyontheupsideriskstoinflation,butarelikelyunder-pricingthedownsideriskstogrowth(seereport:

GlobalEconomicWeekly,Mar20).

Whataretherelevanthistoricalscenarios?

1979-theclassicenergy-drivenstagflationaryshock

•Whathappenedthen?TheIranianRevolutioninFebruary1979ledtotheremovalofaround4%ofglobaloilsupply,withUSoilpricesrisingbymorethan150%byApril1980.Thisenergyshockcoincidedwithabroadersupply

disruption.OnewaytocapturethisisthroughthegapbetweentheUSmanufacturingISMsupplierdeliverytimesindex(ameasureofthedemand/supplybalanceintheeconomy)andthenewordersindex(aproxyforunderlyingdemand).Thisdifference—referredtohereas“supply-sidestress”—rosetoaround2.5standarddeviations

aboveitslong-runaverage.Demandbegantoslowrelativelyquickly.ManufacturingISMnewordersdeclined

almostcontinuouslyfromalocalpeakof64inJuly1978toarecordlowof24byJune1980.Thisslowdown

intensifiedtowardstheendoftheperiodasmonetarypolicytightenedsharplyfollowingPaulVolcker’s

appointmentasFedChair,withtheFedFundsraterisingbynearly7percentagepointsbetweenAugust1979andApril1980.Yet,initiallytheincreaseinsupply-sidestressoverwhelmedthedeclineindemand,leadingtheoveralldemand/supplybalance,akeydriverofinflation,totheupperendofitsrange.BothheadlineandcoreUSCPI

inflationacceleratedmeaningfullyfromalreadyelevatedlevels.Headlineinflationrosefromaround10%inearly1979toapeakof14.8%inMarch1980,whilecoreinflationincreasedfrom9.2%to13.6%.However,ultimatelytheongoingdemanddestructionhelpedtodampeninflationarypressures.Afterreachingits1980peak,core

inflationfellsharply,reaching9.5%byApril1981—thoughitwouldtakeuntil1999forittoreach2%.

•Howdidmarketsreact?TheUS10-yearbondyieldspikedfrom9.2%atthestartof1979toalocalpeakof13.7%inFebruary1980(itwouldgoontomakeevenfurtherhighslater,astheFedkepthiking,reaching15.8%in

September1981).Forequitymarkets,thecombinationofweakergrowth(pushinguptheequityriskpremium)andhigherinflation(leadingtohigherrealbondyields,i.e.ahigherrisk-freediscountrate)isaworst-casescenario,

thoughinnominaltermsthemarketwaspartlyprotectedbytheshifthigherinthegeneralpricelevel.Innominalterms,USequitiesonlyfellby14%betweenlate1978andMarch1980,butthiswaspartlyduetotheinflationupliftforEPS.Inreal,i.e.inflation-adjusted,termsthemarketwasdownby28%overthesameperiod.

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•Howdoestheepisodecomparetotoday?DespitethereductioninoilsupplyfromthecurrentIranwarbeingarounddoublewhatitwasin1979,accordingtotheInternationalEnergyAgency(IEA),USoilpricesareupby40%sofar,i.e.afarlesspronouncedpriceshock,thoughthiscould,ofcourse,stillworsen.Similarly,supply-sidestressintheUShasnotyetspiked,accordingtotheMarchPMI,pointingtolittlebywayofabuild-upofunderlyinginflation

pressuresofar(thoughsupply-stresshasincreasedintheEuroareaandtheUK–andmightstilldosointheUSaswelloverthecomingmonths).Moregenerally,inflationmultipliersbackthenweremuchmorepowerfulthantheyaretoday(duetohigherenergyintensiveness,morepowerfullabourunions,agreaterdegreeofwageindexation

andloweroverallcentralbankcredibility).

2007/08–acredit-inducedslowdownexacerbatedbyanenergy-driveninflationshock

•Whathappenedthen?ByAugust2007,USjobgrowthhadslowedtozeroonathree-monthchangebasis.Atthe

sametime,signsofstressinsub-primemortgagecreditwerebecomingincreasinglyvisible,includingBearStearnshaltingredemptionsinitsstructuredcreditfundsinJune.Corporatecreditdemandhadalreadybeguntoweaken,andbankssubsequentlytightenedcreditsupply.Againstthisbackdrop—andwithcoreCPIinflationstillbroadlyinlinewithtarget—theFedbegancuttingratesinSeptember2007,evenasmanufacturingISMneworders

remainedrobustataround56.Thischangedasoilpricessurgedbyaround110%betweenAugust2007andJune2008,drivenbystrongemerging-marketdemand,limitedOPECsparecapacity,supplydisruptionsandaweakUSdollar.Theenergyshocksignificantlybluntedmonetarypolicytransmission.Bythetimeoilpricespeaked,theUS10-yearyieldhadfallenbyonly55bps,despitetheFedFundsratehavingbeencutby325bps.Theoilpricesurgealsopushedheadlineinflationupbyaround2percentagepoints,intensifyingthedownwardpressureonfinal

demandbysqueezingrealpurchasingpoweratatimewhencreditconditionswerealreadytightening.

ManufacturingISMnewordersfellfrom59inSeptember2007toatroughof26inDecember2008.Asin1979,

demanddestructionultimatelydampenedinflationpressures,withUScoreinflationfadingclosetozeroby

mid-2010.

•Howdidmarketsreact?TheUS10-yearbondyieldspikedby90bpsto4.2%betweenMarchandJune2008,astheriseintheoilpricefuelledinflationconcerns,withtheECBevenhikingratesby25bpsinJuly2008.However,as

themacrodamagefromarapidlyweakeninglabourmarketandthecrunchinthecreditmarketbecameincreasinglyobvious,markets’focusshiftedfrominflationconcernstoworriesaboutdemanddestruction,leadingtheoilpricetocollapseto$36/bblbyyear-endandtheUS10-yearbondyieldtofalltoalowof2.1%.Despitethesupportto

multiplesfromthesharpdeclineintherisk-freediscountrate,globalequitiesdroppedby56%betweenMay2008andMarch2009onthebackofaspikeintheequityriskpremiumandadeclineinEPSexpectations,withthe

lossesacceleratingsharplyafterthefailureofLehmanBrothersinSeptember2008.

•Howdoestheepisodecomparetotoday?USjobgrowthissimilarlyweaktodayasitwasinAugust2007(with3-

monthpayrollgrowthat0%),therearesignsofrisingstressinthe(private)creditmarket,andrisingoilpricesaresettoputastrainonconsumerpurchasingpower.Moreover,thepricingandperceptionofriskinfinancialmarketsissimilarlyinsouciant.TheStoxx600equityriskpremiumandUShigh-yieldspreadsarecurrentlyat5%and

310bps,respectively–bothlevelsthatwereseeninJuly2007–whiletheBofAFundManagerSurveyshowssimilarnear-recordlowsofrecessionriskbeingperceived(seereport:EuropeanFundManagerSurvey,Mar17).Themost

frequentpush-backagainstthecomparisonto2007/08isthatbackthenthereweremeaningfulimbalancesin

termsofstretchedfinancialbalancesheetsandUShousing-marketvulnerability,which,theargumentgoes,meant

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thatacrisisoutcomewasalwayslikelyandpredictable.However,wethinkthatthisargumentisbasedonafallacy:

fortheseimbalancestypicallyonlybecomeobviousinhindsight.Atthetime,riskpremiawereextremelylowand,

ontheGlobalFundManagerSurveyinAugust2007,investorssawglobalrecessionrisksclosetoall-timelow,even

thoughtherecessionstartedamerefourmonthslater.Thismisplacedoptimismwasduetoanarrativethatthe

economywasinaı”GreatModeration”,thattheboomandbustcyclehadbeentamed,thatfinancialderivatives

helpedtodistributerisksinthesystem,makingitsaferdespitehigherleverage,andthatsub-primewasonlya

smallpartoftheeconomyand,therefore,oflimitedrisk.Allthesebeliefsturnedouttobefalse,ofcourse,butit

wasonlywhenthetidewentout,inWarrenBuffett’swords,thattheimbalancesandunderlyingriskswere

exposed,orasBuffettputit,onecouldseewhohadbeenswimmingwithouttheirtrunkson.Rather,inourview,

themaindifferencewiththe2007/08episodeisthattheweakeningintheUSlabourmarketinthesummerof

2007wasdrivenbyacleartighteningincreditconditionsonthebackofasharpincreaseinUScorporates’net

interestexpense(i.e.theproportionoftheirincomethathavetodedicatetodebtservicing),whilethistimeround

creditconditionsarestillmoderatelyeasyandcorporates’netinterestexpenseremainsclosetoall-timelows.

2020–amajorsupply-chainanddemandshock

•Whathappenedthen?InFebruary2020,marketsremainedsereneinthefaceofworryingpandemic-related

headlinesandclearsignsofdisruptionstoeconomiclifeinAsia,mostlikelybasedontheassumptionsthatsimilardisruptionswereunlikelytooccurintherestoftheworld(weourselveswereguiltyofthisbelief;seereport:

EuropeanEquityStrategy,March2020).WidespreadlockdownsinMarch2020inresponsetothepandemicdrovea

spikeinsupply-sidestresstoarecordhighofover5standarddeviationsabovethelong-runaveragebyApril.This,

byitself,wouldbeinflationary.However,thelockdownsalsocausedanoffsettingdropindemand,withthe

manufacturingISMplungingfrom51inFebruaryto27inApril.Asaconsequence,thedemand/supplybalance

shiftedtothelowerendofits20-yearrange,leadingcoreinflationtofadebyaround0.5pptsto1%.Oilpricesalso

plungedsharplyinresponsetofallingdemandand,infact,brieflyturnednegative.

•Howdidmarketsreact?Withdemanddestructionfromthelockdownswampingtheinflationaryimpactofdisruptedsupply,centralbankswerefreetoshiftintomaximumeasingmode,bothintermsofcuttingrateszeroand

restartingtheirQEprograms.Onthebackofthismonetaryeasingeffort,bondyieldscollapsed,withtheUS10-yearbondyieldreaching0.5%inMarch2020.Globalequitymarketsinitiallycollapsed,asthecollapseinglobalgrowthmomentumpushedupriskpremiaandtriggeredearningsdowngrades,buttheswiftreversalofmany

lockdownmeasuresallowedtheglobalPMItotroughinApril2020,ameremonthafterthestartofthecrisis,followedbyastrongrebound,whichcompressedriskpremia,triggeringasharprebound.

•Howdoestheepisodecomparetotoday?AsinFebruary2020,marketsremainclosetoall-timehighsandlifein

manyWesterneconomiesstillremainmostlyunaffected,evenasworryingheadlinesdiscusspotentialfuture

shortages.Inanechoofthatearliercrisis,therearealsoalreadysignsofactualshortagesineverydaylifeinAsia–themostexposedregiontothesupply-chainramificationsoftheIranwar–suchasrestaurantclosures,fuel

shortages,flightcancellationsandgovernment-mandatedactivityrestrictionsinsomecases.Lastweek,theIEA

advisedgovernmentstorespondtopotentialenergyshortageswithwork-from-homemandatesandthecurbingofnon-essentialtravel,i.e.measuresfamiliarfromthestruggleagainstthepandemicsixyearsago.IftheIranwarandtheblockageoftheStraitofHormuzgetresolvedsoon,thesesimilaritiesto2020willfadequickly.However,a

prolongedlossoftheenergysuppliesrunningthroughtheStrait(aswellasthelossofotheressentialproduct,

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includingfertilizer,heliumandsulphuricacid)orevenafurtherescalationoftheconflict,leadingtomoredamage

toessentialenergyinfrastructure,couldforcegovernmentstoresorttorationingandotherdemand-curbing

measures,whichwouldweighonglobalgrowthmomentum.

2022–asupplyshockwithoutdemanddestruction

•Whathappenedthen?Theepisodeof2022standsoutfromtheothersdiscussedsofarinthatitfeaturedasupplyshock(fromtheoutbreakoftheRussia-UkrainewarinMarch2022)thatdidnotultimatelytranslateintodemanddestruction.Hence,globalgrowthneverweakened,thedemand/supplybalanceonlyshiftedlowerbriefly–andthewholeepisodewasmainlyabouttheinflationarypressuresthatresultwhensupplydecreaseswithoutanoffsettingreductionindemand.Globalgrowthwasweakatthestartoftheyear,withUSGDPgrowthbrieflyturningnegativeasmanyofthepandemic-erastimulusmeasureswereremoved,leadingtoasharplynegativefiscalimpulse,whileChinawaslabouringunderthedragfromitsZero-Covidcampaigninresponsetorecurringwavesofthepandemic.

Then,oilpricesstartedtospikeinresponsetothestartofthewar,withpricesincreasingby60%between

December2021andJune2022.Thishelpedtodriveanaccelerationinheadlineinflationofaround1pptoverthe

period.Inwhatlookedlikeaperfectstormformarkets,theFedalsostartedraisingratesinMarch2022forthe

firsttimesince2018andwentontohikebyover400bpsbytheendoftheyear.Yet,whilethecombinationof

reducedconsumerpurchasingpowerfromspikingoilpricesandtightermonetarypolicyagainstthebackdropof

already-weakgrowthcouldbeexpectedtoleadtomeaningfuldemanddestruction,infacttheoppositeoccurred.

Globalgrowthstronglyacceleratedfromalowof1.1%inQ12022to5.6%inQ3,helpedbyareopeninginChina

andacceleratingUSgrowthdueto:(a)arenewedwideningintheUSbudgetdeficitfrom2%ofGDPonasix-

monthrollingbasisinMay2022to8%inSeptember2023;and(b)thereopeningoftheUSeconomy,allowing

consumerstospendtheirsignificantpandemic-eraexcesssavingsonservicessuchrestaurantsandtravel.With

suppliesdisruptedbythewarandChina’son-and-off-againCovidpoliciesanddemandincreasingsharply,the

demand/supplybalance,asakeydriverofunderlyinginflationpressure,spikedtooneofthehighestlevelsince

the1970s,fuellingariseincoreCPIinflationtoa40-yearhighof6.6%.

•Howdidmarketsreact?Withdemandreboundingandinflationblisteringlyhot,marketsquicklymovedtowards

pricingextremecentral-bankhawkishness,leadingtheUS10-yearbondyieldfrom1.5%atthestartof2022to

4.9%bytheendof2023.Globalequitiesinitiallyfellby27%fromlate2021toOctober2022inresponseto

weakeningglobalgrowth,butthensoaredbackby30%byJuly2023despiteacontinuousriseintherisk-free

discountrate,asthesurgeinglobalGDPgrowthandglobalPMIshelpedtocompressriskpremiaandliftEPS

expectations(thelaunchofChatGPTinNovember2022gaveafurtherboosttomarketsbyintroducingthenotionofapotentialAI-fuelledpick-upinproductivitygrowth).

•Howdoestheepisodecomparetotoday?TheIranwarhastriggeredamajordisruptiontoglobalenergysupplies–thelargesteveraccordingtotheIEA–andtheriseinoilpricesofnearly40%,similartowhatwasseenin2022.

Manycentralbanksstillhavethe2022episode,whentheywereinitiallytemptedtolookthroughtheinflationspike

onlythentohavetocatchup,freshintheirminds,makingthemeagertoavoidasimilarlytardyresponse.With

bondyieldshavingspikingoverrecentmonthsandriskpremiainequityandcreditmarketsstillclosetoa20-year

low,marketsalsoappeartosomedegreetobepricingarepeatofthe2022experience(i.e.discountinginflation

upside,butverylittlebywayofgrowth/demanddownside).Fromourperspective,thekeyfeatureof2022isthat

thesqueezeinconsumerpurchasingpowerfromhigherenergypricesneverresultedindemanddestruction,as

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powerfulforces,ChinaandUSreopening,USfiscalstimulusandthepresenceofUSexcesssavings,provideda

meaningfuldemandboost.Withdemandthussupported,war-relatedsupplydisruptionsimmediatelyturnedinto

tangibleinflationpressure.Unlike2007/08andtoday,therealsowerenopre-existingfragilitiesintheUSlabour

market,withUSjobsgrowthstillrunningclosetotheupperendofits40-yearrangeandjobopenings,ataround

4m,stillplentiful,reducingtheriskofaweakeningindemandfromlabour-marketweakness.Arepeatof2022

hingesonseeingacombinationofbothmeaningfuldemandstrengthandsupply-sidestress.Giventhescaleof

disruptionfromtheIranwarandthewarningsignalsfromtheEuroareaandtheUK,ariseinsupply-sidestressisa

risk.However,theweaknessintheUSlabourmarketandanupcomingsqueezeforpurchasingpowerfromhigher

energypricessuggeststousthatdemandgrowthstrengthsimilartothepost-pandemicperiodleadingupto2022

isunlikelytomaterializethistimeround.

2025–growthandinflationworriesthatdidnotamounttomuch

•Whathappenedthen?TariffhikesinAprillastyearwereexpectedtogeneratebothagrowthshockandaninflationspikethroughacombinationofatighteningfiscalimpulse(tariffsbeingaformoftaxation),disruptionoftrade

flowandthepass-throughofhighercostsforcorporatestoconsumers.However,partlyinresponsetotheadversemarketreaction,theUSadministrationswiftlymoderateditsplannedtariffincreases,withtheexpectedUS

effectivetariffratedecliningfromapeakof28%inAprilto16%inJune,accordingtotheYaleBudgetLab(atthestartoftheyear,ithadbeen2%).ThemoderationinthetariffonslaughtincombinationwiththesupporttogrowthfromtheAIcapexboomandstrongconsumerspendingonthebackofafadeinthesavingsratio,supportedbya

wealtheffectfromequity-marketgains,meantthatthefearedhittoglobalgrowththatmarketshadbeenpre-pricing,neverarrived,withtheglobalPMIrisingby2pointsbetweenAprilandNovember2025andglobalmacrosurprises(whichmeasurethedegreetowhichglobalmacrodatasurprisestotheupsideordownside)staying

almostconsistentlypositiveduringtheremainderoftheyear.Despiteariseinsupply-sidestressfromthetariffincreases,thelevel,atonestandarddeviationabovethelong-runaverage,wasrelativelymodestandalsoshort-lived,fadingbyJuly.Meanwhile,politicalsensitivitiesandyearsofrisingpricesmeantthatcorporateschosetoshouldermuchoftheburdenofhighertariffs.Asaconsequence,bothheadlineandcoreinflationacceleratedbyonlyamodestdegreefromtheAprillevelsthroughuntillatelastyear(0.5pptsforheadlineand0.3pptsforcore).

Withgrowthsolidagainstthebackdropofaweakeninglabourmarketandinflationwell-behaved,theFedcutrates

by75bpsthatyear,generatinggoldilocks-likeconditionsformarkets.

•Howdidmarketsreact?Globalequitiesdroppedby16%aroundthetimeofthetariffannouncements,whiletheUS10-yearbondyieldroseby60bpsbetweenAprilandMayduetoconcernsabouthigherinflationahead.However,astariffswerewatereddown,theincominginflationandgrowthdataremainedbenign,themarketshiftedfrom

pricinginflationandgrowthconcernsbacktowardsagoldilockssetting,withequitiesreboundingby36%andbondyieldsdecliningby40bpsto4.15%byyear-end.

•Howdoestheepisodecomparetotoday?Themainlessonfrom2025isthatagrowthandinflationshockthatseemsalmostunavoidablecanquicklydissipateifmarkets’re-pricingoftheeventputsenoughpressureonpolicymakerstochangethepoliciesthatwerethreateningtocausetheimpactinthefirstplace.IftheIranwarandthe

blockagesintheStraitofHormuzareresolvedtomorrow,leadingglobalenergyflowstoresumeandif,

furthermore,thewar-relateddamagetoenergyinfrastructureturnsouttobemildandeasilyreversible,then2025couldturnouttobeagoodplaybookforthecurrentepisode.However,thereareimportantcaveats:(a)in2025,a

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singlepartycoulddecidetochangecourse,allowingthepotentialdamagetogrowthandinflationtobeunwound

relativelyquickly.ThistimearoundaresolutionwouldrequiretheagreementofIran,IsraelandotherGulfcountries

aswell,creatingmorepotentialfordisagreementanddelay;(b)someofthedamagetoenergyinfrastructure

seemssubstantialandmightleadtolonger-lastingdisruptionsevenifthewarweretoendtomorrow;and(c)even

iftheoilpriceremainsatthecurrentlevelof$90/bblfortherestofthemonthbeforefadingto$80/bblinApril,in

linewiththeBofAQ2averagebasecase(seereport:GlobalEnergyWeekly,Mar10),thiswouldimplyaround3ppts

ofupwardpressureforthree-month/three-monthannualisedUSheadlineCPIinflationfromenergycommodities

byMay,whichcomparestoamaximumaccelerationof1.6pptslastyearonthismeasurebetweenJuneand

October.OurbasecaseistonotseeupsidepressurefromothercomponentsofUSinflationasaresultofbroader

supply-sidestressthatisgeneratedbytheIranwar,butthehistoricalexperiencesofenergypriceshocks

mentionedabove,andwhathasbeenseenintheEuroareaandtheUK,suggestthattheriskliesclearlytothe

upside.Asaco