Market expectations have shifted dramatically. On the morning of March 19, the main liquefied petroleum gas (LPG) futures contract surged by the 10.99% daily limit, reaching 6,392 yuan per ton. Low-sulfur fuel oil, crude oil, and methanol also experienced significant gains. In the A-share market, the coal sector strengthened, with Shaanxi Black Cat hitting the limit-up, followed by Dayou Energy, Shaanxi Coal Industry, Antai Group, Jinmei Group, and Yunnan Coal & Energy.
The catalyst was an announcement from Qatar Energy that several of its liquefied natural gas facilities were hit by missile attacks in the early hours of Thursday, causing major fires and severe damage. Emergency response teams were immediately dispatched to control the damage, with no casualties reported so far.
Subsequently, former US President Donald Trump stated that the United States had no prior knowledge of Israel's strike on Iranian facilities. He added that Israel would refrain from any further actions against the highly significant and valuable South Pars gas field.
On March 18, Iran's Islamic Revolutionary Guard Corps issued an urgent warning, declaring oil facilities in Saudi Arabia, the UAE, and Qatar as "legitimate targets" for imminent strikes, urging civilians in related areas to evacuate.
The shockwaves are being felt. The situation in the Middle East appears to be escalating uncontrollably. Qatar Energy confirmed that multiple LNG facilities were struck by missiles, leading to substantial damage and fires. This event quickly triggered a sharp rise in related futures contracts.
Crucially, both Trump and Qatar seemed unaware of Israel's bombing of Iranian petrochemical facilities. Trump expressed that Israel launched a strong strike on Iran's key South Pars gas field out of anger over regional events, affecting a small section of the field. The US had no knowledge of this specific attack, and Qatar was neither involved nor informed beforehand. He noted that Iran, unfortunately unaware of the facts, unjustly attacked parts of Qatar's LNG facilities.
Trump warned that unless Iran unwisely attacks Qatar—which is entirely innocent in this matter—Israel will not target the South Pars field again. However, if Iran does so, the US, with or without Israel's assistance, would completely destroy the entire South Pars field with unprecedented force. He emphasized his reluctance to authorize such destruction but stated he would not hesitate if Qatar's LNG facilities are attacked again.
As a result, while major global markets declined in early trading, energy and chemical-related futures and stocks showed strong performance. Hong Kong-listed oil shares rose, with Yanchang Petroleum International up over 8%, CNOOC gaining over 5%, and PetroChina rising more than 2%, followed by China Oilfield Services and Kunlun Energy. A-share petrochemical and coal sectors also performed well.
Market expectations are evolving. Previously, markets held a short-term view on the conflict's duration, with relatively muted and controlled global reactions. However, as hostilities deepen, this outlook is changing.
UBS Group AG strategist Andrew Garthwaite indicated that global equities may remain in a consolidation phase due to high uncertainty and varied potential macroeconomic outcomes. UBS set its 2026 target for the MSCI World Index at 1100, slightly below the previous 1130 estimate, suggesting modest upside from the current 1015.60 level amid ongoing volatility.
UBS highlighted a wide dispersion of potential outcomes. In an optimistic scenario, a quick resolution to the Middle East conflict combined with strong AI-driven productivity growth could push the MSCI AC World Index's fair value to 1280. Conversely, if the conflict persists for three months or more without productivity gains, the fair value could drop to 700, implying a roughly 30% decline from current levels.
The strategist noted that even with a potential quick resolution, risks of supply chain disruptions—such as in sulfur, jet fuel, and India's LPG—may be underestimated. Several near-term headwinds are keeping markets range-bound. Risk and sentiment indicators remain elevated, with UBS's risk appetite indicator at the 15th percentile of its 10-year range, while systemic and autonomous investor positions are largely neutral rather than indicative of capitulation.
Meanwhile, defensive sectors like consumer staples and pharmaceuticals have not significantly outperformed, suggesting markets have not fully priced in an economic slowdown. Commodity markets are sending mixed signals: oil futures point to temporary disruptions, but sharply rising bond yields indicate investors may be underestimating inflation risks.
The Reserve Bank of Australia warned that the Middle East conflict could trigger severe international shocks, though domestic banks are well-positioned to support the economy in a significant downturn. In its semi-annual Financial Stability Review, the RBA listed global vulnerabilities, including potential financial market collapses, cyberattacks, and the spread of unconventional policies, noting that the risk of major adverse shocks to the domestic economy has increased in recent weeks.
The RBA stated, "The Middle East conflict could trigger larger shocks disrupting the global economy, especially if supply disruptions in oil and other commodity markets persist... Given the significant rise in leverage and concentration in key global asset markets amid low risk premiums in recent years, this increases the likelihood of disorderly repricing under further adverse developments." The RBA also cautioned that AI-related investments could face substantial sell-off risks if productivity fails to improve as expected.
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