War Clouds Recede———Will Oil Ever Rebound?

Pentagon Reshuffle Signals Ground War

Last week, oil prices experienced a new round of surging—with single-week gains exceeding double digits—driven by President Trump's aggressive, pre-war mobilization-style remarks. Although a dramatic rescue of an American pilot took place over the weekend, the more critical focus remains the personnel upheaval within the upper echelons of the US military. From a logical standpoint, this could be a strategic move to install loyalists in preparation for an eventual full-scale conflict. Therefore, even if a "ground war" is not necessarily the optimal choice, the risk of its outbreak can no longer be ignored.

According to public sources, at least three top military officials have been "reassigned" or "forced into retirement," including the high-ranking Army Chief of Staff Randy George. At such a critical juncture, it is highly unusual for Defense Secretary Pete Hegseth to demand the resignation and retirement of the Army's top general. Whether this is an effort to purge so-called "moles" or to clear out top brass who oppose a ground war, the civilian leadership (the "suits") has clearly prevailed over the military establishment (the "uniforms") in this round of internal power struggles. Naturally, from the military's perspective, refusing to be the scapegoat and allowing the Defense Secretary's inner circle to take charge is a mutually beneficial outcome.

Oil Nears Record Highs: Is a Financial Storm Looming?

If a ground war is ultimately launched, financial markets will inevitably bear the immediate brunt of the shock. A further spike in oil prices will fundamentally weaken the medium- to long-term outlook for most risk assets. Inflationary pressures are already becoming apparent, and a broader cascading effect will gradually materialize in the coming months, likely forcing central banks to consider rate hikes rather than easing policies. Naturally, the future trajectory of the war remains a crucial variable. However, drawing parallels from the course of the Russia-Ukraine conflict and the state of US-Iran hostilities over the past month, there is a relatively high probability that the Middle East will descend into a protracted war of attrition. Although market sensitivity tends to fade as a conflict drags on, fundamental differences persist. After all, the strategic positioning of the Strait of Hormuz and its direct impact on global energy supplies profoundly and visibly dictate oil prices. Consequently, if Trump finally decides to initiate a ground offensive, the market is expected to face even more severe turbulence and pressure.

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Currently, oil is only one step away from its previous critical high. If any slight disturbance drives prices to break through this week, surging toward historical highs will merely be a matter of time. Even if short-term news flow causes oil to fail in its upward push this week, as long as it maintains support above the $96.5 mark, this is highly likely just a verbal stalling tactic by Trump. By mid-to-late April, as troops are fully deployed, a major confrontation will be unavoidable, and oil prices will undoubtedly stage a fierce comeback.

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Dollar Faces Critical Safe-Haven Test

In the potential next phase of a ground war, the foreign exchange market may witness asset performances that sharply diverge from current market trends. We have consistently discussed the gradual waning of absolute US and military hegemony, yet the market does not seem fully unified in its approach to dollar-denominated assets. While US equities and bonds have both faced selling pressure, the US dollar has unexpectedly emerged as a safe-haven asset with a positive correlation to oil prices. The dollar is currently embroiled in a critical battle at the neckline; if a breakout above the resistance near 100.25 is confirmed, there is theoretical room for a rebound toward the 104-105 range. Conversely, if a ground war becomes excessively protracted, allowing the market to more clearly perceive the operational limitations of the US Army, the dollar may lose its current safe-haven halo. In the long run, the decline of the dollar's dominance is only a matter of time, and the market simply needs a catalyst to cement this consensus.

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Weekly Trading Strategy

• British Pound (GBP/USD): The remaining half of last week's pound position was executed at an average price of around 1.3250. The stop-loss is set at 1.3000, with target prices at 1.3700 and 1.4270.

• Gold: We will continue to attempt short-term long positions on gold this week. Limit buy orders are placed at 4380 and 4260 (half position each). The stop-loss is set below 4100, targeting 4900 and 5120.

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