MW Drone warfare could mean investors need a new guidebook for this Iran conflict

By Joy Wiltermuth

Use of 'shoot and scoot' drone warfare could prolong Iran conflict, warns Papic at BCA Research

Smoke from a missile strike in central Tel Aviv, Israel on Saturday after joint Israel-U.S. strikes on Iran.

Investors should brace for a U.S.-Israel conflict with Iran that could be complicated by drone warfare, according to Marko Papic, chief strategist at BCA Research.

"At this point, we are laser focused on the fulcrum question going forward: how effective are Iran's drones?" Papic wrote, in a Saturday client note. "In particular, how effective drones are in impairing production and transportation of crude via the Strait of Hormuz."

This matters because few alternatives exist for the oil-rich Middle East region to keep crude flowing to global markets without safe passage through the crucial Strait of Hormuz.

"The alternatives to the Strait of Hormuz are paltry and rely on infrastructure - such as the Saudi East-West Crude Oil Pipeline and the Abqaiq-Yanbu NGL pipeline - that themselves could be targeted with drones," Papic wrote.

Wall Street's immediate focus has been on the conflict's potential to sweep up other countries in the Middle East or disrupt crude flow from the region, fears of which could push global (BRN00) crude prices to $100 a barrel.

See: Iran conflict raises talk of a return to $100-a-barrel oil

On the flip side, the shale revolution granted the U.S. energy independence in 2019, and since January it has been exerting control over Venezuela's oil.

Complicating the matter, there's some risk that drones costing only about $2,000 each could be used in a "shoot and scoot" fashion, threatening shipping in the Persian Gulf and other infrastructure in the region, according to Papic.

These "small, mobile, independent units" are far cheaper than U.S. interceptor missiles at $2 million each, he said. They also could operate for weeks, if not months, in Iran's mountainous coastline, even if "communication with Tehran frays."

Conversely, with U.S. midterm elections "just eight months away, the safe bet is not to expect this worst-case scenario," he said, noting that President Trump also could "declare victory shortly, perhaps as soon as this coming week."

Trump on Saturday, in a social media post, said Iran's Supreme Leader Ali Khamenei had been killed in the operation, while urging "Iranian people to take back their Country." He also said "heavy and pinpointed bombing" will continue as long as necessary, to achieve an objective of "PEACE THROUGHOUT THE MIDDLE EAST AND, INDEED, THE WORLD!"

The uncertain backdrop has Papic staying long Brent and U.S. crude (CL.1), but also oil equipment and services IEZ. He's also watching the Breakwave Tanker Shipping ETF BWET, the haven status of the U.S. Dollar Index DXY and Treasurys BX:TMUBMUSD10Y, as well as industrials, materials, energy stocks, copper (HG00) and other commodities.

Should copper, an industrial metal, start selling off, it could signal a shift in recent concerns from a "tech rotation" and software implosion in the U.S. stock market SPX DJIA to an outright recession, he said.

Finally, Papic thinks the "rotation out of tech will not be arrested by the conflict in the Middle East. It will be accelerated."

Read: Trump calls for regime change after U.S.-Israel attack on Iran. Markets should brace for more than June's brief military campaign.

-Joy Wiltermuth

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February 28, 2026 17:31 ET (22:31 GMT)

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