Oil shock, China’s ‘slow bull market’, and a possible US ‘Suez moment’: Jefferies flags shifting global market risks

Rising geopolitical tensions in West Asia, the risk of an oil supply shock if the Strait of Hormuz remains disrupted, China’s policy-driven push for a “slow bull market” in equities, and the possibility of a geopolitical setback for the United States similar to the 1956 Suez crisis are among the key risks shaping global markets, according to a latest note by Jefferies strategist Christopher Wood.

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Strait of Hormuz

The report said the closure or prolonged disruption of the Strait of Hormuz could have serious long-term consequences for global energy markets, even though financial markets have so far reacted with relative calm to the recent US-Israel attack on Iran. Oil supply concerns remain central because a large share of global crude flows through the narrow waterway, and any sustained blockage could trigger a sharp rise in energy prices and inflation.

Jefferies noted that the US decision to release crude from its Strategic Petroleum Reserve highlights the lack of preparation for a prolonged conflict. The reserve currently holds about 415 million barrels, significantly lower than the 656 million barrels held in 2020, limiting Washington’s ability to manage a sustained supply shock. Higher oil prices, the report added, could benefit major producers such as Russia, while also easing pressure on countries like India that continue to import Russian crude.

US and Suez crisis

Beyond the immediate geopolitical risks, the report argued that the conflict could turn into a political setback for the United States, drawing parallels with the Suez crisis of 1956, which marked the beginning of Britain’s retreat as a global imperial power. According to Jefferies, the longer the conflict drags on, the greater the risk that the current situation becomes a similar turning point for US influence.

While global markets have shown volatility, the reaction has not been as severe as expected. The VIX volatility index has risen sharply from late-2025 levels but remains below last year’s peak, while US Treasury yields have moved higher, reflecting persistent inflation concerns and uncertainty about monetary policy.

China and financial markets

In contrast to the geopolitical uncertainty, China is pursuing a deliberate strategy to stabilise its financial markets through what policymakers describe as a “slow bull market”. The government wants the stock market to gradually replace the property sector as the main driver of household wealth, after years of decline in residential real estate prices.

Property values in major Chinese cities are estimated to have fallen sharply from their peak, while household bank deposits have surged to record levels. Authorities are now encouraging dividend payouts, share buybacks, and tighter control over new listings to ensure that more cash is returned to investors, a shift aimed at rebuilding confidence in equities.

Institutional investors, particularly insurance companies, have been increasing their allocation to stocks, helping bank shares outperform the broader market. Chinese equities have also recovered strongly from their 2024 lows, even though the broader economy continues to face deflationary pressures and weak nominal growth.

Jefferies said large amounts of household deposits maturing this year could provide fresh liquidity to the market, especially as interest rates on bank deposits have fallen sharply, reducing the attractiveness of savings.

Despite the uncertain global backdrop, the firm maintains an overweight stance on China in its Asia portfolio, arguing that policy support, cheap valuations, and the shift away from property could sustain the gradual equity rally, even as geopolitical risks and energy market shocks remain the biggest threats to global stability.