The Strait and the System: How a U.S.–Iran War Could Reshape Oil, Capital Flows, and Global Real Estate
Economic and Financial Consequences of a US–Iran War
Executive summary
The most likely macro‑financial consequence of a US–Iran war is not a uniform “war recession,” but a state‑dependent energy‑and‑shipping shock that reprices global inflation risk and dollar liquidity risk simultaneously. In most plausible pathways, the Strait of Hormuz functions as the dominant transmission node: even without a lasting loss of upstream production, the market can experience a “deliverability shock” driven by higher war‑risk insurance, freight dislocation, and precautionary inventory demand - conditions that the U.S. Energy Information Administration links to oil’s short‑run supply and demand inelasticity and consequent price volatility.
A key parameter is scale. EIA estimates that oil flows through the Strait averaged ~20 million barrels per day in 2024 (~20% of global petroleum liquids consumption) and notes that most volumes transiting the Strait have no practical alternative means of exiting the region. The International Energy Agency similarly emphasizes the Strait’s centrality and estimates 3.5–5.5 mb/d of alternative export capacity via pipelines (Saudi Red Sea route and UAE Fujairah route) even in a disruption—significant, but small relative to the chokepoint’s scale.
The base case is therefore a risk premium shock that tightens global financial conditions through the U.S. dollar and sovereign and credit spreads, with disproportionate stress in emerging markets and in those U.S. real‑asset segments most exposed to refinancing conditions. In particular, U.S. commercial real estate (CRE) is vulnerable because official supervisors already document elevated refinancing constraints and office underperformance: the Federal Deposit Insurance Corporation reports that high interest rates inhibited CRE refinancing in 2024, office vacancy rose to 13.8% (and 15.2% in the top 20 office markets), and CMBS delinquency reached 6.57% overall with 11.01% for office.
This report frames outcomes through three scenarios: limited strike, sustained regional war, and escalation involving shipping lanes, assigns analyst‑judgment probabilities, and provides probability‑weighted central estimates. The quantitative ranges are designed for institutional stress testing rather than as point forecasts; where primary data do not exist in usable form (notably real‑time CMBS tranche spread series), the report states the gap explicitly.
Scenario framework and quantification method
The scenario design reflects the empirical asymmetry emphasized by the International Monetary Fund: geopolitical risk events often have modest average effects, but military conflicts show disproportionately larger and more persistent impacts on asset prices. The IMF provides two anchoring magnitudes used here to calibrate sovereign repricing: within one month of a country’s involvement in a major international military conflict, sovereign CDS spreads widen by ~40 bp in advanced economies and ~180 bp in emerging markets.
Probability weights (analyst judgment)
Limited strike / contained conflict (50%): kinetic action is time‑bounded; no durable impairment to Hormuz transit; shipping risk premia spike then fade.
Sustained regional war (35%): multi‑month conflict with intermittent attacks, elevated insurance and freight costs, and recurring risk‑premium repricing.
Escalation involving shipping lanes (15%): material degradation of safe transit/insurability through Hormuz (partial disruption more likely than full closure) causing a deliverability shock.
These weights are judgmental and should be treated as inputs for stress testing, not as statistically estimated probabilities.
How the quantitative ranges are constructed
Oil scenarios are anchored to (i) chokepoint scale and bypass capacity described by EIA/IEA; (ii) EIA’s documentation that oil price volatility is tied to short‑run supply/demand inelasticity; and (iii) the expectation that risk premia can persist when spare capacity and logistics flexibility are perceived as limited.
FX and sovereign moves are calibrated to (i) IMF conflict‑linked CDS magnitudes; (ii) evidence that the dollar generally behaves as a safe‑haven currency in risk‑off environments; and (iii) the role of dollar funding markets and hedging channels.
EM outflow magnitudes are anchored to historical “sudden stop” scale: an IMF Independent Evaluation Office background paper documents that non‑resident portfolio investors pulled a record ~$83 billion from EM equities and bonds in March 2020: a benchmark for the plausible order of magnitude in severe global risk episodes.
CRE, CMBS, and REIT stress is calibrated to (i) the documented starting‑point fragility in office/CMBS and refinancing; (ii) the observed sensitivity of listed REIT returns to long‑term rates; and (iii) a war‑driven tightening in credit spreads and underwriting standards.
Explicit data gaps. Public, primary sources do not provide a consolidated, continuously updated series for CMBS tranche spreads comparable to standardized corporate bond spread indices, nor a complete, open dataset of voyage‑specific war‑risk insurance premia by class and route. As a result, CMBS spread projections are presented as scenario‑consistent ranges rather than model‑estimated point forecasts, and shipping‑cost discussion uses official/IO evidence plus reported market behavior.
Scenario projections and probability‑weighted outcomes (no tables; expository format)
Scenario A: Limited strike (50% probability).
Oil reprices primarily through a transient risk premium rather than sustained physical loss. Given EIA’s description of inelasticity, a modest perceived impairment to future supply can still produce a meaningful spot response. Under this scenario, Brent is projected to peak at +$10 to +$25/bbl (illustratively $90–$105 if the pre‑war reference is $80) over 2–10 trading days, then mean‑revert as shipping confidence stabilizes. EIA’s own recent forecasting language underscores that near‑term price paths can be highly dependent on conflict duration and production outages: reinforcing the “fast repricing, then conditional fade” structure of this scenario.
FX and rates: a classic risk‑off configuration is expected: broad USD +1% to +3%, EUR −1% to −3% versus USD, JPY +1% to +4% versus USD (USD/JPY down), while high‑beta EM FX weakens −2% to −7% depending on external buffers and oil import dependence. The direction aligns with evidence that the dollar generally appreciates when global risk rises and that risk‑off episodes tighten global financial conditions. U.S. sovereign yields may fall on safe‑haven demand but are capped by inflation risk: U.S. 10‑year −25 bp to +10 bp over one to three months (central tendency modestly negative). Sovereign credit repricing is modest: advanced‑economy CDS +10 to +35 bp and EM CDS +50 to +150 bp, consistent with scaling down the IMF’s “major conflict involvement” estimates.
Capital flows: EM portfolio outflows are projected at $10–$40B in month 1, materially below March 2020 but directionally consistent with “rush to safety” mechanics. Cross‑border bank lending slows but does not seize; liquidity strains remain manageable.
U.S. CRE and securitized real estate: the primary effect is a short‑term rise in risk premia and financing spreads rather than an immediate collapse in fundamentals. Cap rates are projected to expand +10 to +25 bp as discounted‑cash‑flow rates rise. CMBS spreads: AAA +15 to +60 bp and BBB‑/mezzanine +75 to +200 bp in a three‑month window (range reflects volatility sensitivity and limited dealer balance‑sheet capacity). These moves are amplified by the sector’s starting fragility in office and delinquency levels documented by FDIC. Listed REITs: −5% to −12% total return near term, with dispersion (industrial/multifamily more resilient; office more vulnerable) consistent with rate sensitivity and sector fundamentals.
Scenario B: Sustained regional war (35% probability).
Oil reprices through both persistent risk premia and intermittent physical/logistical disruption. The choke‑point arithmetic dominates: EIA emphasizes that 20 mb/d transited Hormuz in 2024 and that available bypass capacity (EIA estimate ~2.6 mb/d) is limited, while IEA puts alternative route capacity higher (3.5–5.5 mb/d) but still far below the chokepoint scale. In this scenario, Brent is projected to peak at +$30 to +$65/bbl (illustratively $110–$145 if the pre‑war reference is $80), with the price remaining meaningfully elevated for 1–3 months and settling at a higher plateau for as long as the conflict produces recurring shipping and infrastructure risk.
A critical “second wedge” is shipping and insurance. UNCTAD documents that war‑risk insurance premiums have reportedly surged from ~0.07% to as high as ~2% of ship value in conflict contexts, a magnitude that can materially raise delivered energy costs and raise inflation pass‑through even if crude benchmark prices stabilize.
FX and sovereigns: sustained risk tends to reinforce safe‑haven ordering - USD +2% to +5%, EUR −2% to −5%, JPY +2% to +6%, and EM FX −5% to −15% (oil importers and high‑external‑debt countries most exposed). The IMF’s evidence on sovereign CDS widening in major military conflicts provides an anchor for the upper half of these ranges; under sustained war, EM sovereign risk premia plausibly move toward that magnitude even if conflict is not globally systemic. Rates: U.S. 10‑year −10 bp to +60 bp (higher variance than the limited strike because inflation risk can dominate safe‑haven demand if energy prices remain elevated). Credit: advanced‑economy CDS +20 to +50 bp, EM CDS +150 to +350 bp.
Capital flows: EM outflows are projected at $40–$90B in month 1, reflecting partial “sudden stop” dynamics. The March 2020 benchmark ($83B) indicates that these orders of magnitude are feasible when global risk is synchronized; sustained war increases the likelihood of synchronization. BIS banking statistics show the scale of cross‑border banking exposures and the potential for retrenchment: global cross‑border bank claims are on the order of tens of trillions of dollars (eg, BIS reports cross‑border bank credit outstanding $32.6T at end‑2024 and cross‑border bank claims reaching $45T by Q3 2025). Under sustained war, lenders typically shorten tenor and reduce EM exposure, tightening external financing conditions even where portfolio flows dominate.
U.S. CRE: sustained war is most likely to worsen refinancing stress via higher volatility in long rates and wider credit spreads. Cap rates are projected to expand +25 to +75 bp over 12 months, concentrated in office and weaker secondary markets. The FDIC’s baseline indicators - office vacancy at 13.8% overall (15.2% in top markets) and office CMBS delinquency at 11.01%—imply that any additional tightening in lending standards pushes more assets into “extend‑and‑pretend” or distressed refinancing. CMBS spreads: AAA +50 to +150 bp, BBB‑/mezzanine +200 to +500 bp, with higher sensitivity to office collateral pools. Listed REITs: −10% to −25% (3–6 month horizon), with dispersion: industrial and necessity retail show relative resilience; office and levered mortgage‑REIT exposures are most rate‑ and spread‑sensitive. Evidence from Nareit highlights the negative relationship between REIT total returns and the 10‑year Treasury yield during rate shocks—supporting the direction of these estimates.
Scenario C: Escalation involving shipping lanes (15% probability).
This is the nonlinear tail: a deliverability shock where shipping is impaired, insurance is constrained, and the market must ration barrels through price and emergency stock releases. EIA stresses that inability to transit a major chokepoint “even temporarily” can create substantial supply delays and raise shipping costs; with 20 mb/d flowing through Hormuz, even partial impairment creates a global imbalance far larger than available bypass. LNG amplification is material: EIA estimates ~20% of global LNG trade transited Hormuz in 2024, with Qatar exporting ~9.3 Bcf/d and the United Arab Emirates about 0.7 Bcf/d through the Strait—raising the probability of global gas‑to‑oil substitution effects and regional power/industrial disruptions.
Oil prices: Brent is projected to peak at +$70 to +$170/bbl (illustratively $150–$250 on an $80 reference) over days to weeks, with the duration of extreme prices driven by (i) the speed of restoring insurability and security, and (ii) the ability to mobilize stocks and spare capacity into the right refining systems and geographies. The EIA’s latest STEO language explicitly links near‑term elevated Brent prices to disruptions of oil flows and a persistent risk premium.
Stocks and SPR: the policy response is likely to involve coordinated emergency releases. IEA member countries are obligated to hold at least 90 days of net oil imports and to be ready to collectively respond to severe disruptions. The IEA’s 2022 response demonstrates operational precedent: collective actions in 2022 totaled 182.7 million barrels, the largest emergency stock release in the IEA’s history. On the U.S. side, the U.S. Department of Energy states that the SPR’s maximum nominal drawdown capability is 4.4 million b/d, but also notes a key operational lag: oil takes about 13 days to enter the market from a presidential decision. DOE’s FY2026 SPR budget materials report 393 million barrels of SPR inventory by end‑2024 and reiterate the IEA framework for coordinated releases. These parameters matter because they imply that SPR releases are powerful but not instantaneous—so the market can still overshoot before physical relief arrives.
FX, rates, and sovereign risk: the tail configuration is a USD liquidity premium plus inflation premium. Expect USD +4% to +8% with acute pressure on EM FX (−10% to −25%). While safe‑haven JPY can strengthen, the dollar can still rise against most currencies when dollar funding markets tighten. Sovereign repricing: advanced‑economy CDS +35 to +80 bp and EM CDS +300 to +700 bp, consistent with the IMF’s conflict magnitudes and with the intuition that a shipping‑lane shock is closer to a global macro shock than a regional event. Rates: U.S. 10‑year +25 to +125 bp is plausible if inflation expectations and term premia dominate; however, a severe global growth shock could generate a temporary “bull‑flattening” even amid high inflation—so the distribution is wide.
Capital flows: EM portfolio outflows of $80–$160B in month 1 are within the envelope implied by the March 2020 benchmark ($83B) when accounting for (i) broader synchronization and (ii) additional commodity‑price stress on EM external balances. Cross‑border bank lending would likely retrench, shortening maturities and raising hedging costs, especially for borrowers reliant on dollar funding. BIS evidence on the structure of global FX derivatives reinforces this risk: outstanding FX swaps reached $111T at end‑2024, roughly 90% have the dollar on one side, and over three‑quarters mature within one year—creating rollover and margin‑liquidity needs precisely when risk aversion spikes.
U.S. CRE and securitized markets: this scenario is most likely to create a broad widening in property risk premia and a sharp tightening of credit to marginal borrowers. Cap rates could expand +75 to +150 bp over 12 months, large enough to drive meaningful price declines for leveraged assets even if NOI is stable. CMBS spreads could gap: AAA +150 to +350 bp, BBB‑/mezzanine +500 to +1000 bp, with office collateral showing the largest deterioration given already elevated delinquency/special servicing indicators. FDIC’s baseline CMBS delinquency levels and the CRE Finance Council’s reporting that office delinquency reached 11.76% and office special servicing 17.30% (Oct 2025) support the view that office is the marginal stress point. Listed REITs could decline −20% to −40% over the acute phase, with the largest drawdowns in office and levered balance‑sheet structures.
Probability‑weighted central tendencies (given 50/35/15 weights)
Using midpoints of the scenario ranges above as central values, the probability‑weighted estimates are:
Brent peak: roughly $120–$125/bbl (central estimate ≈ $123/bbl) over the initial shock window.
Brent average over the first ~3 months: roughly $105–$110/bbl (central estimate ≈ $107/bbl).
Broad USD: roughly +3% (central estimate ≈ +3.1%).
EM sovereign CDS: roughly +200–225 bp (central estimate ≈ +213 bp).
EM portfolio outflows (month 1): roughly $50–$60B (central estimate ≈ $53B).
U.S. CRE cap rates: roughly +40–50 bp (central estimate ≈ +46 bp) with large cross‑sector dispersion.
Global oil markets and the Strait of Hormuz
Oil is the first‑order macro variable because it pairs a large physical footprint with steep short‑run inelasticity. EIA explicitly links higher volatility to the low responsiveness of supply and demand in the short run: conditions that “may require a large price change to rebalance physical supply and demand.”
Direct vs indirect supply disruption
A US–Iran war can disrupt oil markets through three layers:
Direct production outage (damage to upstream fields, processing, export terminals).
Transit disruption (tankers cannot safely pass or are delayed; shipping capacity is rationed).
Deliverability and precautionary demand (buyers stockpile; sellers hold back cargos; time spreads widen as the near‑term premium rises).
The Strait raises the stakes on layer (2) and (3). EIA’s Today in Energy analysis notes that flows through Hormuz in 2024 were more than one‑quarter of total global seaborne oil trade and about one‑fifth of global oil and petroleum product consumption, and that a blockage, even temporary, can create supply delays and raise shipping costs.
A crucial distributional point is destination: EIA estimates 84% of Hormuz crude/condensate and 83% of Hormuz LNG moved to Asian markets in 2024, with China, India, Japan, and South Korea accounting for 69% of Hormuz crude and condensate flows to Asia. The same EIA analysis notes that U.S. direct crude/condensate imports from the Persian Gulf via Hormuz were about 0.5 mb/d in 2024 (about 7% of U.S. crude/condensate imports). This implies that the U.S. macro sensitivity is dominated less by physical shortage and more by global price transmission and financial conditions.
Strait risk, bypass capacity, and the “effective supply gap”
EIA estimates that pipelines in Saudi Arabia and the UAE could provide ~2.6 mb/d of capacity to bypass Hormuz in a disruption, but also notes that day‑to‑day use of those pipelines can limit “excess” capacity available for rerouting. IEA’s assessment is higher—~3.5 to 5.5 mb/d of available alternative capacity, yet still small relative to ~20 mb/d exported via the Strait.
For scenario building, the relevant construct is the effective supply gap:
Limited strike: effective gap near zero; risk premium dominates.
Sustained war: intermittent gap perhaps 1–3 mb/d equivalent (through delays, higher effective shipping costs, and episodic outages).
Shipping‑lane escalation: effective gap can become 5–15 mb/d equivalent if transit is materially impaired, even if upstream production is intact.
This gap must be absorbed via some combination of higher prices (demand destruction), inventory draws, spare capacity deployment, and rerouting—each with frictions.
OPEC responses under war conditions
The Organization of the Petroleum Exporting Countries response function matters in contained and sustained scenarios. EIA emphasizes that OPEC’s spare capacity is a key indicator of the market’s ability to respond to crises and that oil prices tend to incorporate a rising risk premium when spare capacity is low. EIA also notes that capacity concepts vary and that it has updated its definitions for maximum sustainable and effective capacity, highlighting that operationally meaningful capacity is constrained by what can be reached within 90 days and sustained without damaging fields.
In a shipping‑lane escalation, OPEC’s direct production response can be partially muted by logistics: additional barrels are less valuable if they cannot be shipped safely or insured. In other words, OPEC spare capacity is most stabilizing when the constraint is upstream production, and least stabilizing when the constraint is seaborne transit.
Strategic petroleum reserves and coordination constraints
Strategic stocks are the principal policy lever for the first 30–90 days. The IEA’s 2022 collective actions, 182.7 million barrels, establish precedent for large coordinated releases.
On the U.S. side, DOE’s operational details are central to timing: 4.4 mb/d maximum nominal drawdown capability and ~13 days for oil to enter the market after a presidential decision. DOE’s FY2026 budget documents also report 393 million barrels in SPR inventory by end‑2024 and reiterate the IEA 90‑day stockholding framework.
Two implications for scenarios follow:
In a fast shock, prices can overshoot before SPR barrels arrive, meaning that announcements may need to be large and credible to affect expectations.
In a shipping‑disruption shock, the limiting factor can become distribution and refinery compatibility, not the existence of crude in storage.
LNG amplification and cross‑commodity spillovers
EIA estimates that about 20% of global LNG trade transited Hormuz in 2024, almost all from Qatar (9.3 Bcf/d) and the UAE (0.7 Bcf/d). LNG disruption can raise global gas prices, shift power generation toward oil in some regions, and worsen trade balances for LNG‑importing economies—reinforcing FX stress and sovereign risk premia.
Global capital flows and asset allocation
The capital flow response to a US–Iran war is likely to be dominated by safe‑haven demand, EM risk de‑leveraging, and tighter global dollar liquidity (especially in the shipping‑lane tail). The IMF’s evidence provides empirical grounding: geopolitical shocks raise volatility and can impair the stability and intermediation capacity of banks and non‑banks, generating macro‑financial feedback loops.
Safe-haven ordering and FX regimes
Three facts guide the FX scenario:
The dollar is typically viewed as a safe‑haven currency and has generally appreciated in risk‑off environments, as summarized in ECB financial stability analysis.
Research finds global risk shocks tend to appreciate the dollar and tighten global financial conditions, synchronizing global contractions.
Post‑2007 evidence connects risk‑off episodes to USD appreciation and larger covered‑interest‑parity deviations—consistent with “dollar shortage” dynamics.
Under limited strike and sustained war, a classic pattern (USD up; JPY up; EUR down; EM down) is typical. Under shipping‑lane escalation, the dollar can strengthen broadly even if U.S. rates rise, because the driver becomes liquidity demand and funding stress rather than yield differentials.
Sovereign debt repricing and the EM channel
IMF estimates are particularly relevant for sovereign stress testing: within one month of involvement in a major international military conflict, sovereign CDS spreads widen by about 40 bp in advanced economies and about 180 bp in EMs. This is consistent with the mechanism that war increases uncertainty, raises tail risks, and forces investors to demand compensation for fiscal/external vulnerability.
The EM impact is heterogeneous:
Net energy importers face a direct terms‑of‑trade shock, worsening current accounts, pressuring FX, and raising inflation.
Countries with weaker reserve buffers and high external refinancing needs see sharper spread widening and outflows.
The magnitude of outflows in severe regimes is not hypothetical: the IMF IEO paper documents that investors pulled a record $83B from EM stocks and bonds in March 2020 alone. This “sudden stop” benchmark is used to size the escalation scenario’s outflow envelope; sustained war meaningfully raises the probability of synchronized stress of this type.
Cross-border bank lending and “global liquidity”
Cross‑border bank lending is a distinct amplifier from portfolio flows. BIS international banking statistics show the scale of cross‑border claims and credit - $32.6T in cross‑border bank credit outstanding at end‑2024 and $45T in cross‑border claims by Q3 2025. Recent research emphasizes that global liquidity flows are risk sensitive and that the post‑GFC system migrated from bank‑dominated cross‑border intermediation to a broader mix that remains sensitive to balance‑sheet constraints.
In sustained and escalation scenarios, the expected pattern is:
reduced cross‑border credit growth or outright retrenchment to EMs,
shorter tenor and higher hedging costs,
tighter collateral requirements in wholesale funding and derivatives channels.
US commercial real estate, CMBS, and REIT transmission
A US–Iran war would influence U.S. CRE primarily through discount rates, financing availability, and volatility, rather than through immediate occupancy collapse. The key is that CRE enters the shock with observable fragilities documented by supervisors.
Starting-point conditions and why they matter
FDIC’s 2025 Risk Review reports that CRE conditions varied by property type in 2024 with office underperforming; high interest rates inhibited refinancing; and higher operating costs, elevated vacancies, and slower rent growth weakened cash flows. Specifically, office vacancy rose from 13.3% to 13.8% in 2024, and reached 15.2% in the top 20 office markets (vs 8.4% elsewhere), with office rent growth about 1% y/y.
On securitized credit, FDIC reports CMBS delinquency rose to 6.57% in Dec 2024 and office CMBS delinquency to 11.01%, surpassing the prior 2012 peak. The CRE Finance Council reports that in Oct 2025, overall special servicing rose to 10.84%, office delinquency reached 11.76%, and office special servicing reached 17.30%. These metrics imply a system already operating with elevated default probability in the marginal sector (office), so any macro shock that raises refinancing costs can translate nonlinearly into delinquencies.
The Federal Reserve’s April 2025 Financial Stability Report adds a valuation and maturity‑wall dimension: transaction‑based prices for commercial properties were flat recently, but many borrowers will need to refinance maturing loans in coming years, and market liquidity in core markets was low.
Cap rates and financing costs under the three scenarios
Cap rates are best viewed as a decomposition: risk‑free rates + CRE risk premia − expected NOI growth. War affects all three, but most consistently increases risk premia and financing spreads.
Under a limited strike, the expected cap‑rate effect is small but positive (+10 to +25 bp) as risk premia widen briefly.
Under sustained regional war, cap rates expand (+25 to +75 bp) as credit spreads and underwriting tighten, and volatility raises required returns.
Under shipping‑lane escalation, cap rates can gap (+75 to +150 bp) as the discount‑rate channel dominates and refinancing becomes the binding constraint for many leveraged borrowers—especially in office.
These are analyst estimates; the official sources do not publish a canonical cap‑rate “war beta,” but they establish the prerequisites for cap‑rate sensitivity: refinancing dependence and elevated delinquency in office/CMBS.
CMBS market response and why spreads can move sharply
The CMBS spread response is likely to be convex in stress because CMBS valuation depends on both interest rates and credit loss expectations, and because dealer/intermediary balance sheets can be constrained during volatility spikes.
In limited strike, the CMBS move is mainly risk‑premium widening (AAA +15 to +60 bp; BBB‑/mezz +75 to +200 bp).
In sustained war, refinancing stress and office deterioration become more salient (AAA +50 to +150 bp; BBB‑/mezz +200 to +500 bp).
In shipping‑lane escalation, spread gapping is plausible (AAA +150 to +350 bp; BBB‑/mezz +500 to +1000 bp) given the starting delinquency and special‑servicing levels and the likelihood of broader market liquidity stress.
As noted earlier, a consolidated primary dataset for tranche spreads is not openly available; these are scenario‑consistent ranges designed for underwriting stress tests, not market quotes.
REIT performance and sector differentials
Listed REITs transmit CRE stress quickly because they are mark‑to‑market claims on real assets and tend to be sensitive to long‑term rates. Nareit commentary highlights that uncertainty around interest rates and a strong negative relationship between the 10‑year Treasury yield and the FTSE Nareit All Equity REIT Index were key factors in recent REIT drawdowns.
Sector differentials under a US–Iran war are likely to be:
Office: most vulnerable (structural demand impairment + refinancing stress); this is consistent with FDIC vacancy and CMBS delinquency metrics.
Retail: bifurcated; necessity‑based formats are relatively defensive, while discretionary‑exposed retail faces consumer margin pressure from higher energy prices and tighter credit.
Industrial: relatively resilient due to secular logistics demand, but exposed to global trade/production volatility and tighter financing.
Multifamily: cash flows are often more stable, but the sector is financing‑sensitive; higher long rates and insurance/operating costs can compress coverage ratios, and multifamily CMBS delinquency stress has been rising in official commentary.
Regional vulnerability is driven chiefly by office concentration and maturity density. FDIC documents that the largest office markets have much higher vacancy than other markets, implying that gateway‑market office is a prime stress locus even if those markets attract some safe‑haven capital.
Global capital markets, liquidity, derivatives, and central bank responses
A US–Iran war becomes a systemic market event when it pressures liquidity and collateral channels - particularly in the tail scenario where energy volatility and dollar funding stress reinforce each other.
Liquidity and volatility regime shifts
The Federal Reserve’s April 2025 Financial Stability Report notes that liquidity in Treasury and equity markets was low and worsened in April (while functioning remained orderly), and emphasizes that vulnerabilities interact with near‑term risks. This matters because a war shock that raises volatility increases the probability of liquidity‑driven amplification—wider bid‑ask spreads, reduced dealer intermediation, and procyclical deleveraging.
Margin, collateral calls, and counterparty dynamics
The Financial Stability Board’s final report on liquidity preparedness stresses that spikes in margin and collateral calls can contribute to stress transmission across the financial system and that stress testing and contingency funding plans are key resilience tools.
BIS evidence from Europe’s 2022 energy crisis shows how rapidly this channel can bind: “intraday margin calls worth hundreds of millions of dollars” became customary for several weeks, imposing severe liquidity constraints and prompting reduced hedging and deleveraging. In an oil‑and‑shipping escalation scenario, analogous dynamics can emerge in crude, products, freight derivatives, and correlated macro hedges—raising the probability of forced selling in other assets.
Dollar funding risk via FX swaps and hidden leverage
The Bank for International Settlements documents a key structural fragility: outstanding FX swaps reached $111 trillion at end‑2024, roughly 90% involve the dollar on one side, and over three‑quarters mature within one year. This maturity structure means that in a stress event, a large volume of short‑dated positions must roll - raising the risk of wider cross‑currency bases, higher hedging costs, and pressure on entities reliant on “swap‑funded” dollar access.
Central bank backstops: swap lines, FIMA, and repo
Backstop design is critical because energy‑driven inflation can constrain conventional rate cuts even while liquidity strains intensify. Research from the Federal Reserve Bank of New York describes the Federal Reserve’s March 2020 actions—easing terms on swap lines, reactivating temporary swaps, and introducing the FIMA repo facility—and highlights evidence that these tools can reduce strains in global dollar funding markets and U.S. Treasury markets during extreme stress.
In the shipping‑lane escalation scenario, the most likely policy configuration is a two‑handed approach: (i) emergency energy stock release coordination (IEA framework; SPR drawdown) and (ii) liquidity operations (swap lines, repo facilities, standing facilities) to prevent a self‑reinforcing dollar shortage. The IEA’s stockholding obligations and past collective actions, combined with DOE’s operational drawdown parameters, define the feasible time profile for the energy component of the response.
Sources and disclaimer
Primary/official sources.
U.S. Energy Information Administration: “Amid regional conflict, the Strait of Hormuz remains critical oil chokepoint” (Today in Energy, Jun 16, 2025); “About one‑fifth of global liquefied natural gas trade flows through the Strait of Hormuz” (Today in Energy, Jun 24, 2025); “What drives crude oil prices” (Spot prices; Prices & Outlook explainer); Short‑Term Energy Outlook and March 2026 STEO release materials.
International Energy Agency: “Strait of Hormuz – Oil security and emergency response” (Feb 12, 2026); “Oil security and emergency response – About” (stockholding obligation); “IEA Governing Board concludes 2022 collective actions” (Jun 22, 2023); “An update on Member Countries’ contributions to IEA collective actions” (Apr 22, 2022).
U.S. Department of Energy: “SPR Quick Facts” (drawdown capacity and timing); DOE FY2026 Budget Volume 3 – Strategic Petroleum Reserves (inventory and IEA framework).
International Monetary Fund: Global Financial Stability Report, April 2025—especially Chapter 2 “Geopolitical Risks: Implications for Asset Prices and Financial Stability.”
Bank for International Settlements: BIS Annual Economic Report 2025, Section II (FX swaps size, dollar share, maturity structure). BIS international banking statistics and global liquidity releases.
Federal Reserve: Financial Stability Report, April 2025 (CRE refinancing risk; market liquidity conditions).
Federal Deposit Insurance Corporation: 2025 Risk Review (CRE conditions, office vacancy, CMBS delinquency, refinancing headwinds).
Financial Stability Board: Liquidity Preparedness for Margin and Collateral Calls (Final report, Dec 10, 2024).
United Nations Conference on Trade and Development: Review of Maritime Transport 2025 (freight rates, maritime transport costs; discussion of war‑risk premia).
Selected academic/industry sources.
IMF Independent Evaluation Office background paper on COVID‑19 capital flows (record $83B EM portfolio outflows in March 2020).
Georgiadis (2023), “Global Risk and the Dollar” (safe‑haven dollar, transmission to global financial conditions).
Bacchetta–Davis–van Wincoop (2023), “Dollar Shortages, CIP Deviations, and the Safe Haven Role of the Dollar” (risk‑off dollar appreciation and CIP stress).
BIS Bulletin No. 77 (2023), “Margins and liquidity in European energy markets in 2022” (margin call/liquidity amplification).
CRE Finance Council monthly CMBS performance metrics (Oct 2025 delinquency/special servicing).
Nareit research and commentary on interest‑rate sensitivity and REIT performance.
New York Fed Economic Policy Review (2022), “The Fed’s Central Bank Swap Lines and FIMA Repo Facility.”
Disclaimer
This research essay is provided for informational purposes only. It does not constitute investment advice, investment research for the purposes of any securities laws, a recommendation, or an offer or solicitation to buy or sell any security, strategy, or financial product. The views expressed are as of the date of publication and are subject to change without notice.
The analysis contains forward‑looking statements and scenario estimates based on the author’s judgment and stated assumptions. Actual outcomes may differ materially due to changes in geopolitical conditions, policy responses, market liquidity, and other factors. Any quantitative projections are illustrative stress‑testing ranges, not predictions.
Information is drawn from sources believed to be reliable (including official agencies and international organizations), but accuracy and completeness are not guaranteed. Past performance and historical relationships are not indicative of future results. Investing involves risk, including the possible loss of principal.