BCA warning: Israel-Iran conflict may become protracted, but market complacency could push oil prices to $130.

BCA Research's macro and geopolitical strategist Marko Papic warns that the market is underestimating the severity and duration of the current Iran tensions. In an interview, the strategist stated, "The market reaction has been insufficient because this conflict is likely to last a considerable amount of time." Papic believes that despite recent increases in spot oil prices, the oil market is displaying dangerous complacency; oil prices need to rise significantly to resolve this crisis. He predicts that oil prices must reach $120 to $130 per barrel and expresses concern about the "widespread risk complacency in the stock market, as well as in the oil market." The strategist outlined the possibility of the US taking a harsh military response and pointed out that President Trump has hinted at the intention of launching punitive airstrikes against Iran. Papic believes that anyone who thinks Iran can block the Strait of Hormuz for a long period of time is making significant assumptions; such a stance implies that "the Iranian regime is willing to turn the entire country into a parking lot within the next six months." Despite Iran's public tough rhetoric, Papic notes that there are signs that Tehran may be seeking ways to de-escalate the situation behind the scenes. He points out that Iran is "engaging in backchannel talks with numerous countries" and has an ambiguous stance on the issue of fully closing the strait. There are also reports that some oil tankers flying the Indian flag have been allowed to pass through this disputed waterway. Papic cites historical precedents and reminds investors that a similar situation occurred in the 1980s during the tanker war between Iraq and Iran. In that conflict, the US Navy, along with other countries including the Soviet Union, successfully cleared mines and established a naval escort system. Papic ultimately defines the resolution of the current crisis as a "mathematical equation," balancing Iran's resilience with the ability of countries around the world to clear mines in the strait and utilize global reserves. Unlike the 1970s and 80s, the world today has more abundant reserves to buy time. In the end, Iran must endure the "enormous pain of punitive airstrikes," possibly for a longer duration than these reserves can support the global market.