Transcription
Today, the theme I will convey is, as you all can probably imagine, the situation in Iran. Today, I would like to focus on this and convey it to you.
First, this is the situation of WTI crude oil futures prices. I am showing you a candlestick chart for the year, and I would like you to confirm this first.
Regarding these WTI crude oil futures prices, they were initially around $60 per barrel. However, triggered by the Iran war, they temporarily surged all the way to $119 per barrel at one point. After that, due to suggestions from Mr. Trump that he would bring the Iran war to an early conclusion, there were times when prices plummeted sharply. However, in the end, the situation did not improve, and recently, they have risen to the mid-$90s, remaining at a high level, which I believe you can understand.
Now, what about the future? This is the biggest point of focus. However, before I discuss that, I would like to review something. This is the closure of the Strait of Hormuz. This is, above all, the biggest point that the market is concerned about this time. Many of you may already know this, but for those who don't, let me reiterate where the Strait of Hormuz is. It is this narrow strait here. This is what we are referring to. The width of this strait is only 33 km at its narrowest point, and the actual shipping lane width is only about 6 to 10 km. So, it is a very narrow passage that ships must navigate.
And this is now effectively blocked. When it is this narrow, if one intends to attack a ship, it can be attacked relatively easily.
Next, as I will explain later, is the island of Kharg. This is likely the most important island this time, and I will explain it later.
Let me reconfirm the crude oil production volume in the Middle East region. This is based on 2024 figures, shown in barrels per day. The Middle East accounts for approximately 30% of the world's total crude oil production. Saudi Arabia has the largest production volume, at 10 million barrels, accounting for 11% of the total. Following Iran, which has the next highest production volume at 5.06 million barrels, accounting for 5% of the world's share. After that, Iraq with 4.4 million barrels, followed by the United Arab Emirates, Kuwait, and so on. As I mentioned, this region accounts for about 30% of the total, so you can understand how important the Middle East region is as a hub.
Given this situation, the Strait of Hormuz is a very important shipping lane, through which about one-fifth of the world's oil consumption passes. How is this calculated? The total global consumption of crude oil and other liquid fuels is 103 million barrels per day. In contrast, the amount of oil passing through the Strait of Hormuz is 20 million barrels per day. Dividing this gives approximately one-fifth.
In response to this situation, oil stockpiles are being closely scrutinized. Let me reconfirm the oil stockpiles of major countries. This is as of December 2025. All figures are based on IEA (International Energy Agency) standards. While Japan's official announcement states 254 days' worth, according to IEA standards, it is converted to 208 days. Please keep this in mind.
Therefore, as you can see, countries with high energy import dependence tend to have larger oil stockpiles. This is particularly true for Japan and South Korea, which are highly dependent on energy from the Middle East. This is why they have stockpiled a very large amount, exceeding 200 days.
In light of this situation, the IEA, the International Energy Agency I just mentioned, has decided to release 400 million barrels of oil. The largest contributor is the United States, releasing 172 million barrels. The next largest is Japan, releasing 80 million barrels. Followed by South Korea with 22.5 million barrels, Germany with 19.5 million barrels, and then France and the United Kingdom. This totals 400 million barrels.
Although the IEA's oil release might have been expected to temporarily lower crude oil prices, crude oil prices did not fall. This is because, as shown here, it is only a symptomatic treatment. No matter how much oil is released, the blockade of the Strait of Hormuz will not be lifted, and it will not lead to a fundamental solution. Therefore, it can be interpreted that crude oil prices remain high.
In fact, if we calculate this, it becomes clear. Let's re-examine the crude oil transportation routes in the Middle East. First, with the Strait of Hormuz blocked, 20 million barrels per day are reduced. What are the main routes? There are mainly three. First, the East-West Pipeline in Saudi Arabia, which handles about 6 million barrels per day. Next, the Abu Dhabi Pipeline, which is said to handle 1.8 million barrels per day. All these are daily figures. And then, although very small, there is the Abqaiq-Yanbu NGL Pipeline in Saudi Arabia, which handles about 300,000 barrels per day.
Furthermore, regarding the IEA's oil release, the daily amount depends on the period. For example, whether it is 60 days or 90 days, the calculation will differ significantly. However, assuming a 90-day period, it calculates to approximately 4.4 million barrels per day. The shortfall is 7.5 million barrels per day, as shown here. Therefore, even with the IEA's oil release, as is clear from these calculations, it is not enough. This is why oil prices remain high.
So, what should we pay attention to in the future? I believe the most important thing is the price of gasoline in the United States. This shows the average retail price of gasoline nationwide. Triggered by the Iran war, gasoline prices in the United States have also surged. It has already reached $3.8 per gallon. This shows that the United States is not unaffected. Especially since the United States is an automotive powerhouse. For households, gasoline prices are a very important factor. Currently, the main political issue in the United States is affordability, meaning the cost of living. In other words, American citizens are suffering from rising prices. In such a situation, if gasoline prices also rise, it will further burden households. This could lead to increased dissatisfaction with the government.
This is Mr. Trump's approval rating. I am showing it chronologically since he took office. Initially, it was very high, but it has been steadily declining. At the beginning of the war, there was a temporary situation where the approval rating seemed to recover, but it has fallen again. It seems that more Americans are concerned about the Iran war, leading to a decline in approval ratings. Also, as I showed earlier, gasoline prices are soaring, and this dissatisfaction may be reflected in the approval ratings.
Therefore, what I want to say is that the United States has midterm elections coming up on November 3rd this year. It is likely that the Trump administration's true intention is to avoid a scenario where the Republican Party loses. Therefore, this may be a battle of endurance. If gasoline prices continue to rise, for example, exceeding $4 per gallon, American dissatisfaction will seriously increase, and approval ratings will further decline. This is a market optimistic scenario. On the other hand, if gasoline prices rise too much and approval ratings fall too much, there is a possibility that Mr. Trump will declare victory in the Iran war and withdraw quickly. This optimistic scenario is also being discussed. Therefore, as a yardstick, I personally believe it is advisable to pay attention to gasoline prices and approval ratings.
This is an optimistic scenario. Now, let me explain the pessimistic scenario.
Mr. Trump initially said the conflict would end in 23 days. However, it has been extended. On March 15th, Kevin Hassett, Chairman of the National Economic Council, stated on a CBS program that it would take 4 to 6 weeks for the military operations, based on the Department of Defense's view on March 14th. Therefore, it is possible that 4 to 6 weeks is the consensus within the Trump administration. Based on this, the market's consensus is likely that the conflict will end in 4 to 6 weeks. While there is a risk of prolonged conflict, this was the initial expectation.
So, what is 4 to 6 weeks? Let's check the calendar. The Iran war began on Saturday, February 28th. So, 4 weeks from then would be March 28th. 6 weeks would be April 11th. This means it would be from late March to early April. If this period is exceeded, I believe the market will begin to fully price in that risk. Of course, prices have been falling, but some people still believe it will end in 4 to 6 weeks. If, after 6 weeks, there is no improvement, those who were initially optimistic may change their views. Therefore, I consider late March to early April to be a crucial period. If this period is exceeded, I believe there will be a further risk-off development. Or, if a situation is foreseen that will exceed this period, there is a possibility that the market will enter a full-fledged adjustment phase.
If it exceeds 6 weeks and becomes prolonged, the key point to consider is the island of Kharg. The island of Kharg is located about 25 km off the coast of Iran. It is a small island, indicated by the red circle here. It is not that large, actually smaller. It is one of the world's largest crude oil export terminals, and about 90% of Iran's crude oil is exported through Kharg Island. It is a very important base, considered Iran's lifeline.
The United States actually conducted an airstrike on this island on Friday, March 13th. However, at that time, they avoided attacking oil facilities and only attacked military facilities. Why? Because attacking oil facilities would further escalate the energy crisis, and this could lead to rising gasoline prices in the United States. Therefore, it is likely that oil infrastructure was excluded from the targets due to such concerns.
However, Iran will not stand idly by. In retaliation for this attack, they warned of attacks on US-related energy facilities in the Middle East and have already carried out attacks.
Hypothetically, although oil facilities were excluded from the targets this time, if oil facilities are attacked in the future, it may not be an airstrike. This is the opinion of experts. They say it might not be an airstrike but a deployment of ground troops. Ground troops. This would change the phase. If ground troops are deployed, there is a concern that the conflict will become even more prolonged. Whether this actually happens or not, the market will be concerned about it. The deployment of ground troops brings to mind the Iraq War and the Afghan War. The Iraq War lasted from March 2003 to December 2011, about 8 years and 9 months. The Afghan War lasted from October 2001 to August 2021, about 19 years and 11 months. I am not saying it will necessarily last that long, but the concern that it could become prolonged is high, and that is the point I want to convey.
Is this really the case? Actually, a warship named "Tripoli" is reportedly heading towards the Persian Gulf. You might not be familiar with warships, but this is different from an aircraft carrier. A warship carries Marines. According to reports, it carries 2,500 Marines who were stationed in Okinawa. A carrier is for launching aircraft to attack from the air, but a warship is a vessel for deploying ground troops. And it is heading towards the Persian Gulf. Therefore, there is a possibility that troops may be deployed to Kharg Island and conduct operations there, according to reports. This is the worst-case scenario, in my opinion. If this truly happens, it may not be resolved easily. Iran may further attack oil facilities in the Persian Gulf in retaliation, or they may lay mines. Major US media outlets are already reporting that mine-laying has begun. So, it may have already started. If these attacks occur, the conflict could escalate further, leading to a prolonged blockade of the Strait of Hormuz. Therefore, I believe that Kharg Island will be a very important point in this Iran war. I hope you will pay attention to this.
Now, what is the impact on the US economy? I would like to examine this as well. This shows the price of crude oil in the United States since 1974. Please consider this as the retail price of crude oil. I am showing this because it can be traced back historically. Looking back at the past, there have been several periods when prices exceeded $100, but it did not immediately lead to an economic recession in the United States. That is the first point. At the time of the oil shock, the price increased from around $30 to about $30, which is a threefold increase. This time, it temporarily rose from $60 to $119, which is about a twofold increase. However, at that time, it was a threefold increase, so the impact is different from the present. This is another point of difference to keep in mind.
Furthermore, the United States is now a net energy exporter. It produces crude oil domestically, so it is not dependent. In that sense, the US economy is relatively strong. Furthermore, this shows the ratio of US gasoline, heavy oil, and other energy expenditures to nominal GDP over time. At the time of the oil shock in the 1980s, it was 3.68% in the second quarter. However, it has since declined significantly, and recently it is 1.35%. Of course, gasoline, heavy oil, and other energy prices are subject to fluctuations. So, if prices rise, the ratio will increase. I am aware of this. However, even during the Russian invasion of Ukraine, when energy prices rose significantly in the second quarter of 2022, it was still 2.17%. Therefore, the impact on the US economy has relatively decreased. In that sense, the impact on the US economy is likely to be limited compared to the oil shock era.
However, please be aware that this also depends on how long crude oil prices remain high. In the past, during the oil shocks of the 1970s and 1980s, the Strait of Hormuz was not blocked. This time, the Strait of Hormuz is blocked, which is a major difference. Therefore, the key point is how long the de facto blockade of the Strait of Hormuz will continue. If it is prolonged, the risk of a recession in the US economy will increase. Please keep this in mind.
Now, let's look at how the market is reacting. This shows the stock price changes of major countries based on their energy dependence. Starting from February 20th as the base date, we are looking at how much the stock indices have fallen by March 18th. The bar graph shows the stock price changes. The red dots indicate energy dependence, which is the ratio of imported energy to total energy consumption. Please look at the right axis for energy dependence. For stock price changes, please look at the left axis. Initially, countries like Japan and South Korea, which are particularly dependent on energy from the Middle East, saw significant stock price declines. There was a clear correlation at first. However, if you look at the year-to-date changes as of March 18th, there is actually not much correlation between energy dependence and stock price changes. There is no clear trend. The market is not currently emphasizing energy dependence. Rather, stocks are being sold off across the board. Chinese stocks are relatively holding their ground, but major countries, emerging markets, and developed markets are all starting to be sold. This suggests that the prolonged blockade of the Strait of Hormuz is gradually being priced in. In other words, even though the US is not dependent on Middle Eastern oil, if energy becomes scarce, it will naturally affect the US as well. It is no longer a matter of "it doesn't concern us." This is suggested by these stock price changes. Therefore, the market's perspective is also changing.
Another point, this is a bit technical, so I will explain it in detail. In the stock market, there are what are called "factors." What are these? For example, stocks with high dividends, small-cap stocks, value stocks, growth stocks – stocks with various characteristics are called factors in technical terms. I will show you the performance of these factors. On the left, I show the period from the end of last year to the end of February this year for high-dividend stocks and small-cap stocks. The red line shows the overall developed market stocks. There are stock indices that collect stocks with these characteristics from the developed markets. And the performance was as follows. The best performing were high-dividend stocks at 10.2%, followed by small-cap stocks at 9.3%, and value stocks at 7.2%. Growth stocks performed the worst at -2.4%.
Now, how has this changed since the Iran war began? On the right, I show the same thing. Developed market stocks have fallen by 2.6%. However, what you should pay attention to is that high-dividend stocks and small-cap stocks, which had performed well until the end of February, are now being heavily sold off. This is called "return reversal." It is the tendency for what performed well to be sold off. In other words, what was good becomes the opposite, the worst. This reversal phenomenon is called return reversal. So, there is such a tendency. While fundamentals are also influencing this, supply and demand, meaning investors are selling what has performed well, is also a factor. Therefore, two elements are now intertwined. The fundamental aspect, meaning the blockade of the Strait of Hormuz may be prolonged, and the supply and demand as shown here. These elements are intertwined, and the market is currently adjusting. So, it is not solely due to fundamentals.
Amidst this, another point to pay attention to is the European natural gas storage rate. Naturally, Europe will also be affected. Europe is in the worst situation. Europe is dependent on natural gas, and its storage rate is extremely low. Due to the recent cold weather, a lot of natural gas was used, and there are also seasonal factors. Natural gas is particularly used in winter. So, it has been steadily depleted. And this war began with low storage levels. Therefore, it is the worst possible timing for Europe.
The effects are already starting to appear. This shows the trend of natural gas futures prices in the US and Europe from June 2, 2025, to the present. As you can see, European natural gas futures prices have risen remarkably. It is that scarce. Unlike crude oil, natural gas prices reflect regionality. They do not move in tandem. Prices vary significantly by region. This is a characteristic of natural gas. So, while the US is not experiencing scarcity, Europe is already starting to see prices rise. This is as of March 17th. And as of the 19th, it is not yet over, but when I looked at it, it had already reached 196. This red line has risen to 196. Why? Because the LNG export plant in Qatar suffered extensive damage. On the 18th and 19th, there is concern that natural gas may become even more scarce. This facility in Ras Laffan accounts for one-fifth of the world's supply, and it is such an important base that it was attacked by Iran. Even before the attack, shipments were reportedly suspended. However, since it was attacked, even if the Strait of Hormuz is unblocked, it may not recover immediately due to the damage. This is the current view. That is why European natural gas futures prices have surged. In fact, there are several other locations that have been attacked besides this.
Therefore, European natural gas futures prices have risen significantly. For your reference, on August 26, 2022, there was the Russian invasion of Ukraine. At that time, European natural gas futures prices also surged. The highest price was 339 euros. The price as of March 19th, which I showed you earlier, was 67.8 euros. So, there may still be room for prices to rise. You should keep this in mind.
Now, what will become even more important in the future is the Federal Reserve's monetary policy. The FOMC recently held a meeting, and the most significant change was the shift in market expectations for interest rate cuts. At the beginning of the year, the market expected about 2.4 rate cuts by December 2026. However, as of March 18th, it is only expecting less than one rate cut, -0.6. In other words, energy prices have risen, and inflation is expected to rise. Therefore, the market participants now believe that rate cuts will not be possible. Furthermore, at the recent FOMC press conference, Fed Chairman Powell stated that he would not rule out the possibility of interest rate hikes. Rate hikes. The market was previously operating on the assumption of rate cuts, but he made a statement that he would not rule out rate hikes. Therefore, if the blockade of the Strait of Hormuz continues and energy prices remain high, there is even a possibility of interest rate hikes.
This shows the US Consumer Price Index. The red line is recent, from May 2020 to February 2026. The blue line shows the US consumer price index from the 1970s to the 1980s. I have superimposed them, and they look eerily similar, don't they? Although the levels are slightly different from that time, there was the first oil shock and the second oil shock, forming two peaks. Recently, there was the COVID shock, and then the Russian invasion of Ukraine, causing a sharp rise, followed by a decline. Now, it has been in a sideways trend. However, if the blockade of the Strait of Hormuz is prolonged, inflation may rise again. It is becoming similar to the situation in the 1970s and 1980s. It feels like déjà vu. Of course, whether it will rise to this level depends on future developments, but such a scenario is now possible.
If that happens, it will lead to interest rate hikes. This shows the US Consumer Price Index and the FF rate from the 1970s to the 1980s. Strictly speaking, this was not the Fed's policy rate at the time, but I am showing it for reference. As inflation rises, interest rates are naturally raised. As they fall, interest rates are lowered. Therefore, if inflation rises in the future, interest rates will likely be raised. Based on past experience, this is clear, and it is likely to lead to such a situation. Of course, the US central bank, like any central bank, looks at core indicators, excluding energy and food. However, looking at the situation in the 1970s, this was not necessarily the case. When energy prices rose, interest rates were raised. Therefore, it cannot be completely separated.
Now, while I showed you factors earlier, what about by sector? I would like to check this for US stocks, European stocks, and Japanese stocks. The left side shows the period from the end of last year to the end of February this year, and the right side shows the period from the end of February to March 18th. I am using the MSCI US Equity Index. You may not usually see the MSCI, but you can think of it as being almost the same as the S&P 500 index. There is no significant difference.
Looking at sectors, we can actually see the effect of return reversal. Currently, sectors that have performed relatively well recently, excluding energy, are IT, utilities, and communication services. Although they have fallen, their performance is relatively good. If you look at the left side, for example, IT had performed poorly until now. Now, it has moved to the top. Utilities, while not a huge difference, are in this kind of situation. Communication services are here. What was almost flat is now rising. So, while not as clear as with factors, a slight return reversal is appearing in the sector-wise performance of US stocks.
This is the MSCI Europe Index. European stocks actually do not show much return reversal. This is because utilities were performing well to begin with, and they are still performing well on the right side. IT was also performing well to begin with, and it is also in the top ranks on the right side. So, there is not much of a reversal phenomenon. In other words, sector rotation. Triggered by the Iran war, there is a movement to switch from industries that were previously invested in. This is called sector rotation. The fact that such a movement is not seen suggests that instead of rotating sectors within European stocks, European stocks themselves are being sold. This can be inferred from this. So, while some sector rotation is likely occurring within the US, this is not the case for European stocks. Therefore, it is likely that the rise in natural gas prices and other factors are leading to a general sell-off of European stocks.
This is the MSCI Japan Index, which is likely similar to the TOPIX index. Here, we can see a slight tendency for return reversal. Communication services were at the bottom, but recently they have moved to the top. Utilities have also seen their performance improve relatively recently. The only exception is IT, where there has not been much fluctuation. So, while it is a bit difficult to judge, there has likely been some sector rotation. Therefore, it is not yet a situation of overall stagnation in Japanese stocks.
Now, let's look at the trend of EPS, which I always present. How has the outlook for corporate earnings changed among market participants and analysts in response to the Iran war? Actually, it has not changed. US stocks, Japanese stocks, and European stocks are all projected to continue their upward trend. The outlook for earnings remains strong, for now. Analysts have not revised their forecasts downwards. Rather, they are looking positively towards the future. However, stock prices are moving, and if you look at the P/E ratio, the S&P 500 index in the US has fallen significantly. The P/E ratio is already in the 20s. Furthermore, the TOPIX, which I showed on the previous page, had risen recently, so its valuation was relatively attractive, but it has adjusted. European stocks were at low levels, so they were not overvalued, but they have also fallen. This is the current situation. Therefore, the relative situation has not changed. The order of US stocks being relatively overvalued, followed by Japanese stocks, and then European stocks, remains the same.
Finally, let's look at the situation of the major indices again. First, the S&P 500 index. As of March 18th, it is at 4624.70 points. This is the situation around the 200-day moving average. The blue line is the 200-day moving average. If there is a sharp decline from here, it will fall below the 200-day moving average, which would be technically unfavorable. In other words, it may fall further.
Next, the Nasdaq 100 index. This is also around the 200-day moving average, just slightly above it. If it falls below this, there is a possibility of entering an adjustment phase. The Magnificent 7 index, which collects only the Magnificent 7 stocks, has already fallen below the 200-day moving average. Therefore, for major large-cap growth stocks, technical signs are already negative. On the other hand, for other stocks, the situation is still holding up, but they are also around the 200-day moving average. This is a somewhat unusual timing.
What about European stocks? European stocks have risen significantly so far. Although they have recently adjusted, they are still some distance from the 200-day moving average. Conversely, the extent of the adjustment is also significant.
Finally, the Nikkei average. The Nikkei average has also risen significantly so far. It is not yet in the same situation as US stocks. However, if it falls below the 100-day moving average, the 200-day moving average is currently at 40,718.8 yen, which is quite a distance. Therefore, if it falls below the 100-day moving average and enters an adjustment phase, the adjustment in Japanese stocks could also be considerable. This is based solely on the moving average. This is the current situation.
To summarize, my previous bullish stance on US stocks has been downgraded to neutral. The reason is, as explained, the concern about the prolonged blockade of the Strait of Hormuz due to the Iran war. The market initially assumed that the conflict would end in 4 to 6 weeks, but it seems that this is becoming difficult. Therefore, I have downgraded from bullish to neutral and will observe the situation. However, there is also an optimistic scenario, so a neutral stance is appropriate.
Regarding European stocks, the stance was already neutral. However, even though prices have fallen, it is not a situation to buy. In particular, for Europe, the rise in natural gas prices is a bottleneck. European stocks include some growth stocks, but they also contain many cyclical stocks. Therefore, they are expected to be affected by global economic trends. Thus, I cannot be bullish, and I will maintain a neutral investment rating.
Finally, regarding Japanese stocks, I was previously bullish, but I am downgrading to neutral this time. In particular, as you all know, Japan is heavily dependent on energy from the Middle East. Therefore, in that sense, it is negative. Furthermore, it will be difficult to proceed with energy procurement negotiations while balancing the interests of both the US and Iran. Therefore, it will be quite difficult. There is also the possibility of downside risk to stock prices if negotiations fail. Therefore, I am downgrading the investment rating from bullish to cautious.
Finally, an announcement. The next session will be on April 27th, Monday, from 6:30 PM to 7:30 PM, at the same time. The venue will be Tokyo, as it is this time. So, those who can attend the Tokyo venue, please join us again next time. For those watching online, we will continue to live stream online, so please register.
Now, we will move on to the Q&A session. Thank you.