The technical data from the March 27 CENTCOM and IDF briefings (source: Institute for the Study of War) indicates a fundamental shift in the mechanics of the Iran conflict. This indicates a move from a high-intensity kinetic war to a fragmented attrition phase. We believe the conflict is nearing an “inflection point” where geopolitical risk premiums may begin to decompress rapidly as global supply chains demonstrate resilience via alternate energy sources and substitution effects. Factors underpinning this view include:

1. The “90% Decay” Metric (Operational Exhaustion)
The most critical data point is the 90% reduction in Iranian missile volume. Iran has moved from 90-missile “saturation” strikes on Feb 28 to a nominal 10-missile rate as of March 30th. This is not a choice; it is likely a forced reality due to the destruction of 70% of Iran’s launcher infrastructure and one-third of Iran’s total stockpile.

2. Quantifying the Supply “Hole” and Bypass Capacity
While the world is technically losing ~20% of its crude supply – 16.5 million barrels per day (“bpd”) of critical crude and diesel/jet fuel that cannot travel the Strait of Hormuz – the net deficit is smaller than the headline numbers suggest. More than half of the supply hole can be filled through other pipelines and links, including Saudi Arabia’s Red Sea pipeline, the continued flow of Iranian/Chinese-flagged traffic, and Strategic Petroleum Reserves (“SPRs”).

3. Military Realism: Reopening the Waterway
By creating a sovereign-backed marine insurance corridor, clearing mines, and providing protection, the US military should be able to reopen the Strait of Hormuz. While a complete return to “pre-war normal” is likely months away, the first two weeks of April will likely determine if the waterway reopens through a negotiated ceasefire or a massive military escalation.

Strategic Outlook
Our analysis suggests the current net deficit will transition into a 1.5M bpd surplus within 12–24 months as substitution and new production scale. With crude oil prices likely to recede in the near future, energy equities seem unattractive, especially given their high prices.

We have identified the following industries as having the greatest difficulty substituting oil & gas for alternative fuels or feedstocks: (listed in order of impact)

A. Agriculture (Nitrogen Fertilizers)
Agriculture is perhaps the most critically dependent on natural gas, specifically for ammonia synthesis.

• The Irreplaceable Feedstock: Natural gas is the primary source of hydrogen for the Haber-Bosch process to create synthetic nitrogen fertilizers (Urea/Ammonia).  
• Substitution Wall: As of March 2026, roughly 60% of global synthetic fertilizers rely on natural gas. While “Green Ammonia” (using electrolysis) is a theoretical alternative, the infrastructure does not yet exist to meet the 180+ million ton annual demand.
• Impact: Any sustained natural gas shortage directly threatens global crop yields and food security, with few short-term alternatives beyond organic biomass, which cannot scale to modern industrial needs.

B. Petrochemicals (Plastics and Polymers)
The petrochemical sector uses Natural Gas Liquids (NGLs) like ethane and propane and refinery products like naphtha as its primary “ingredients.”

• The Building Blocks: Ethylene and propylene—the foundations of almost all plastics, packaging, and textiles—are derived directly from these feedstocks.  
• Substitution Wall: While bio-based plastics exist, they currently account for less than 1% of global production. The Energy Transition Commission’s “Mission Possible” report (updated March 2026) concludes that plastics are among the hardest sectors to decarbonize because the carbon atoms in the oil/gas become the product itself.
• Impact: A shortage in naphtha or ethane forces a direct reduction in the production of everything from medical syringes to food packaging.

C. Heavy Industry (Steel and Cement)
These industries require “high-grade” heat (above 1,400°C) and specific chemical reactions that electricity often cannot provide. For example, traditional steelmaking uses coking coal or natural gas as a “reducing agent” to strip oxygen from iron ore. The primary alternative for steel is Green Hydrogen (DRI), but major projects (like Salzgitter’s) were recently postponed until 2028-2029 due to a lack of hydrogen infrastructure. As of March 2026, no commercial-scale non-coal or gas pathway is running at a meaningful global scale.

D. Aviation and Long-Haul Shipping
While short-haul trucks can move to electric or Compressed Natural Gas (“CNG”), long-distance transport requires the energy density of liquid hydrocarbons.

• Aviation: Jet fuel is arguably the hardest fossil fuel to replace. Sustainable Aviation Fuel (SAF) is the primary hope, but even with new 2026 mandates in Singapore and Switzerland, it currently meets less than 0.5% of global demand.  
• Shipping: The maritime sector remains 90% dependent on heavy fuel oil and marine diesel. While “FuelEU Maritime” regulations began their first verification period in January 2026, the cost of retrofitting the global fleet for ammonia or methanol is prohibitive for most operators in a high-interest-rate environment.

Investment Implications

• Cyclicals in the Red: Rising energy prices have cast a shadow over economically sensitive sectors, depressing the valuations of many cyclical stocks.
• Risks Higher: Even after the US ultimately disengages from Iran, geopolitical risk will likely remain elevated for several quarters.
• Variance in Outcomes: In technology and consumer sectors, recent weakness reflects both cyclical concerns and longer-term structural shifts, requiring even greater precision in stock selection.
• Transitory: If the US achieves a satisfactory set of goals for Iran, portfolio holdings have the potential to rally.  Overall, the conflict has not currently caused us to mark down our two-year price targets for portfolio companies.
• Valuation is the Guide: Per Causeway history, we use unjustified share price weakness to add to existing positions where our investment thesis remains intact. Market dislocations may also create opportunities to initiate new investments in high-quality businesses at more attractive values.

This market commentary expresses Causeway’s views as of April 1, 2026 and should not be relied on as research or investment advice regarding any stock. These views and any portfolio holdings and characteristics are subject to change. There is no guarantee that any forecasts made will come to pass.  Forecasts are subject to numerous assumptions, risks, and uncertainties, which change over time, and Causeway undertakes no duty to update any such forecasts. Information and data presented has been developed internally and/or obtained from sources believed to be reliable; however, Causeway does not guarantee the accuracy, adequacy, or completeness of such information.  For full performance information regarding Causeway’s strategies, please see www.causewaycap.com.   

In addition to the normal risks associated with equity investing, international investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. Current and future holdings are subject to risk.  For further information on the risks regarding investing in Causeway’s strategies, including unique risks relevant to emerging markets including China and investment structures of certain Chinese companies, please go to https://www.causewaycap.com/wp-content/uploads/Risk-Disclosures.pdf