The Iran war could rattle the global economy long after hostilities end

Oil prices fell on Wednesday after reports that the United States had given Iran a plan to end the war, sending stocks soaring. Can investors finally breathe easy? Not so fast, says Morgan Stanley. Even reopening the critical Strait of Hormuz, which Iran effectively closed to oil tankers during the conflict, would not immediately return the world to its pre-conflict state, analysts said in a client note. Approximately 20-25% of the world's oil supply and 20% of liquefied gas pass through this critical shipping lane, and the ease with which it can be shut down could permanently change the way countries approach their energy policies. A new lens for many. Despite many conflicts in the Middle East over the decades, none have resulted in the complete closure of the Strait of Hormuz. As analysts point out, the post-war global economy will likely change in three ways: The world needs reserves away from the Middle East. Much of the world's excess oil is on the wrong side of the Bosphorus, making it largely inaccessible in the event of a shutdown. This will force countries to reconsider the value of this spare capacity given its location, thus keeping prices high and volatile. In other words, countries can put an asterisk on the excess supply on the wrong side of the Strait and consider only a fraction of it as truly accessible surplus. More emphasis on strategic stocks. Once this conflict is over, countries will likely seek to increase their domestic reserves to higher levels than before. The United States has never managed to replenish its strategic oil reserves to pre-2022 levels. Given this, efforts to do so are likely to increase, especially in Europe and Asia, which are feeling the brunt of oil disruption. Higher prices for longer. We will probably see a premium for oil supplies that do not pass through the Bosphorus. Since energy is a global commodity, premiums on oil from a single source will generally increase prices, even if "Strait energy" is sold at a discount to high-priced non-Strait supply lines. Of course, the winners of all this are the companies in the energy sector. Morgan Stanley now estimates 2026 earnings will be double previous expectations and 2027 earnings will be about 50% above previous expectations. Losers? Everyone else. High oil prices erode consumer spending power and increase the cost of a key input for companies; which then has to absorb or pass on the higher prices. Even if the war is resolved, company margins could tighten or prices could fall, resulting in a pickup in inflation, neither of which are good for stocks. The relative winners are the companies that are best positioned to eat or absorb costs; that is, those with scale, pricing power, and strong enough secular tendencies that investors can ignore the negative effects of higher energy prices. Think Linde in materials or Costco in consumer staples. While oil prices may remain high, stocks should rise if a solution to the war is found. Often, what concerns investors is not the level of a commodity or financial modeling input (such as interest rates), but the volatility and speed of movements. Wall Street can price good news or bad; Uncertainty is what causes investors to step aside. In addition to monitoring oil prices, Jim Cramer told members at Wednesday's meeting that the way Chevron trades is a good barometer for the direction of the overall stock market. If Chevron is down, as it was on Wednesday, then the market will likely move higher and vice versa. The value of increased certainty from the end of the war must be more important than an extra $20 a barrel in the price of oil, at least in the near term. This is especially true if the Federal Reserve makes the conditions a little easier to justify lowering interest rates; labor market dynamics may make this necessary. Low rates and increased certainty in oil supplies (even if we start putting an asterisk on Strait-bound supplies) will help stocks. (See here for a complete list of stocks in Jim Cramer's Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.