The persistent uncertainty surrounding the duration of the Iran conflict is compelling investors to revisit recent market guides for predicting potential outcomes. Many are re-examining trades executed following the 2022 Russia-Ukraine conflict, betting that this week's surge in energy prices will fuel inflation, sustain dollar strength, and weaken bonds and equities. While markets showed little reaction to the 12-day Iran war initiated by the US and Israel last year, concerns are mounting that the current conflict could be prolonged.

"Let me be perfectly clear: just open the 2022 playbook," said Jordan Rochester, head of fixed income, currency, and commodity strategy at Mizuho Bank in London. "This is both a war and a logistics crisis. Trade conditions are under shock, and 20% of global energy supplies cannot leave the region, even if only temporarily."

The unpredictable nature of warfare means sentiment can shift rapidly. Some analysts caution it is too early to predict an economic shock on the scale of 2022. A report by The New York Times, suggesting Iranian officials contacted the CIA seeking a truce, provided slight relief to equity markets and tempered the dollar's rally. Oil prices also surrendered some gains.

However, the report was quickly denied by Iran. The official Tasnim News Agency, citing informed sources at the Iranian intelligence ministry, labeled the story "sheer lies and psychological warfare."

Market reactions since the outbreak of hostilities bear notable similarities to those seen after the Russia-Ukraine conflict began. Brent crude futures have surpassed $82 per barrel, while natural gas prices have surged to their highest levels since 2023. A global equity index has fallen 2%, with South Korea’s benchmark Kospi posting its largest-ever decline. Inflation fears have reduced expectations for Federal Reserve rate cuts and undermined the traditional safe-haven status of US Treasuries. The dollar has strengthened against all major currencies.

"Investors are getting nervous," wrote Bilal Hafeez, head of market strategy at Macro Hive Ltd, in a client note on Tuesday. "On Monday, they viewed this as a short-lived Middle Eastern conflict, with US stocks even closing higher. But today, markets are beginning to price in a more prolonged confrontation."

He suggested that if the 1990 Gulf War serves as a reference, oil could surge to as high as $100 per barrel within a month, while the S&P 500 might either trade sideways or fall by more than 10%. If bond markets behave similarly to past conflict periods, the 10-year US Treasury yield could climb to between 4.25% and 4.6%, with the dollar gaining further against the euro and yen.

Matthew Haupt, a hedge fund manager at Wilson Asset Management, is also looking to the Russia-Ukraine conflict four years ago for clues. "What we're seeing now is pure liquidation; even safe-haven assets aren't entirely safe to some extent," Haupt said. "The current strategy is similar to what we observed during the Russia-Ukraine period, but the focus this time is on oil, and the risks are significantly larger." He has closed his long oil positions this week.

A primary concern for markets is that turmoil in the Middle East could trigger a global inflationary shock, reminiscent of the supply chain disruptions in 2022 that forced governments to spend heavily to protect industries and consumers. EU governments alone borrowed over €500 billion ($582 billion) for such measures.

During that period, a broad measure of dollar strength rose 6% from February 24 through year-end. Inflation worries drove the two-year US Treasury yield up by more than 2.8 percentage points, while the 10-year yield increased by 1.9 percentage points. Gold prices declined, and the S&P 500 fell 19% over the year, its worst performance since the 2008 global financial crisis.

European natural gas prices have surged as much as 85% since last Friday but remain well below 2022 peaks. However, with Russian energy supplies still constrained, Europe faces greater risks this time; any further reduction in supply could significantly impact inflation. Strategists at Citigroup predict that if the conflict lasts more than two weeks, gas prices could jump from around €55 per megawatt-hour to €100.

Yields in the UK and Europe have risen sharply this week as traders have priced out chances of a Bank of England rate cut and even begun considering potential European Central Bank rate hikes. This repricing reflects inflation concerns and the risk of increased government borrowing to fund higher defense spending.

Rising oil and gas prices have pressured the euro below $1.16, its lowest level since last November. Options markets have briefly echoed this stress, with the one-week sentiment index for the euro reaching its most pessimistic level since 2022.

"The rebound in risk sentiment following The New York Times report appears fragile, as investors have ample reasons to remain cautious," said Bloomberg strategists Conor Cooper and Macro Squawk. "The report itself noted that US officials were skeptical and that the contact occurred days ago. This skepticism is reflected in the modest pullback in oil prices."

At Principal Asset Management, which oversees more than $590 billion, Howe Chung Wan, head of Asian fixed income, is also looking back to 2022 for strategies to navigate energy volatility but expects risks from the Iran conflict to be more severe.

"The Ukraine-Russia impact on oil was largely concentrated in Europe, but this time the effects are broader," said Howe, who has taken profits on emerging market bond trades. Although prior conflicts were mainly confined to Israel and Iran, "if the Gulf Cooperation Council becomes militarily involved, we could see a much larger shift in the Middle East geopolitical landscape."

Naturally, not all analysts are alarmed. Strategists at Deutsche Bank note that the current oil price increase pales in comparison to historical crises such as the 2022 Russia-Ukraine conflict and the earlier Gulf War.

Analysts suggest that for the recent energy shock to cause a sustained 15% or greater decline in the S&P 500, investors would need to see oil prices rise by at least 50% to 100% over several months, accompanied by broader macroeconomic damage and hawkish central bank responses.

"The scale of the current energy shock is hardly comparable to 2022," said Erik Nelson, macro strategist at Wells Fargo. He advises clients to "venture into the tiger's den" by buying euros, targeting a rebound in EUR/USD above 1.19.

Best Guide The chairman of Goldman Sachs Group stated that it could take weeks to gain a clearer understanding of the situation but described market reactions so far as "benign."

Nevertheless, many traders remain cautious. For veteran Rajeev De Mello, with four decades of market experience, caution pays, and the Russia-Ukraine conflict remains the best available reference guide for investors.

"Investors are being forced to reduce portfolio risk, cutting back on equities and corporate credit," said De Mello, global macro portfolio manager at Gama Asset Management SA. "The lesson from 2022 is that investors should not buy the dip initially, because there will be more dips to come." He has reduced exposure to European, Japanese, and emerging market stocks this week.