Bank of America strategist Michael Hartnett warns that a prolonged Iran conflict could reshape global asset allocation, benefiting commodities, the U.S. dollar, and defense-linked sectors while creating risks for energy importers. Hartnett identifies Korea, Japan, and Europe as particularly vulnerable regions with minimal energy equity exposure.

On the upside, oil, U.S. technology, and global defense sectors stand to gain from extended conflict. Hartnett cautions that escalation represents the "biggest threat to Japan & Europe bank bull leadership." Conversely, de-escalation could trigger a reversal trade, with investors reducing exposure to oil and the U.S. dollar while risk assets stabilize.

Recent fund flows reveal investors positioning for these scenarios. Energy funds recorded a record $7.0 billion weekly inflow, while U.S. equity funds saw $13.9 billion in outflows - the largest in six weeks. Emerging-market equities attracted $9.9 billion, and Japanese equities saw $4.2 billion of inflows. The U.S. dollar's trajectory above 100 on the DXY index could reinforce tightening liquidity conditions and increase inflationary risks linked to energy markets.