U.S./Israel-Iran War: the Middle East On Edge
NextFin News - Japan's sogo shosha, the general trading companies that have served as the country's commodity arm for more than a century, are posting record profits as a once-in-a-generation copper rally collides with conflict-driven energy dislocations. The five largest houses - Mitsubishi, Mitsui, Itochu, Sumitomo and Marubeni - have lifted earnings guidance to record levels after copper set a new intraday high above $14,600 a tonne on the London Metal Exchange and the war in the Middle East sent oil and liquefied natural gas prices soaring. The windfall is not an accident of pricing; it is the payoff from a business model that places the same company on both sides of the physical flow when supply chains break.
The Record Numbers
The latest earnings round makes the scale concrete. Marubeni reported first-half adjusted net profit up 45% year on year to ¥318.0 billion ($2.02 billion) for the six months to September 30, and raised its full-year net profit forecast to a record ¥630 billion from ¥580 billion previously. Revenue climbed 23% to ¥5.180 trillion. Mitsubishi, the largest of the group by revenue, said consolidated net income jumped 74% to ¥619.7 billion in the six months ended September, from ¥355.8 billion a year earlier, and lifted its full-year net income forecast to a record ¥1.2 trillion for the fiscal year ending March 2027. Underlying operating cash flow at Mitsubishi rose 63% to ¥728.1 billion, and the company approved share buybacks of up to ¥1 trillion.
These are not isolated prints. Aggregate net income across the five major sogo shosha expanded from ¥0.98 trillion in fiscal 2021 to ¥3.8 trillion in fiscal 2025, a 3.9-fold increase over four years, according to an analysis of the companies' XBRL filings. In fiscal 2025, Mitsubishi led at ¥950.7 billion, followed by Mitsui at ¥900.3 billion and Itochu at ¥880.2 billion, with Sumitomo at ¥561.8 billion and Marubeni at ¥502.9 billion. The earnings wave that began with the post-pandemic commodity cycle has been extended - and amplified - by the twin shocks of a copper squeeze and a Middle East war.
Copper's path through 2026 reads like a ladder. Benchmark prices burst through $13,000 a tonne for the first time in early January, hitting a record $13,187 on the LME after a gain of more than 4% in a single session and an advance of more than 20% since mid-November. The metal rallied again through the spring, touching $14,196.50 a tonne in May, close to the all-time high of $14,527.50 set in late January. In early September it set a new intraday record above $14,600 a tonne. The short-term momentum had less to do with excess demand than with an imbalance in global inventories and a tariff-driven rush to ship metal into the United States; the long-term driver is the energy transition and the buildout of AI data centres, while miners struggle to expand supply. S&P Global estimates global copper demand will surge from 28 million tonnes in 2025 to 42 million tonnes by 2040, leaving a 10-million-tonne shortfall unless supply expands meaningfully.
Why The Sogo Shosha Are The Perfect Vehicle For This Moment
The sogo shosha are not simple commodity brokers. They own mines, LNG liquefaction plants, shipping capacity, smelters and offtake contracts across the supply chain, which means they capture value at multiple points when prices move. A copper rally flows through their equity stakes in miners, their trading desks and their smelting margins. An energy shock flows through LNG offtake, coal trading and freight. This vertically integrated structure is what separates the Japanese houses from Western commodity traders and pure-play miners: when a mine goes down in Chile or a tanker route is disrupted in the Strait of Hormuz, the sogo shosha do not merely watch the price move.
Mitsubishi's own results statement illustrates the transmission mechanism: its mineral resources business benefited from higher copper and Australian steelmaking coal prices, while energy and power earnings gained from increased liquefied natural gas transactions and dividend income. Marubeni similarly credited surging metal prices for boosting returns from its mining and smelting operations, alongside strong performance in its trading businesses. Non-resources profit at Marubeni - chemicals, trading, lifestyle and agricultural holdings - firmed sharply in the same period, showing that the rally reached beyond the resource book.
"We have been able to capture the rise in oil prices that stem from the Middle-East conflict," said Mitsubishi chief executive Katsuya Nakanishi, a former Middle East hand. He added that the region's chronic instability has long been factored into the company's risk-allocation strategy, so it has not placed new capital directly in the most volatile markets.
The conflict exposure is hedged rather than naked. Marubeni's chief executive Masayuki Omoto said that if oil prices stay above the pre-conflict assumption of $60 a barrel, the company could see an extra ¥30 billion to ¥40 billion in earnings by the end of the fiscal year - an estimate that assumes the war will be resolved by the end of June and reflects the firm's cautious stance. Sumitomo's chief financial officer Reiji Morooka disclosed a ¥23 billion buffer for possible losses in its automotive business in Iraq, fertilizer shortages and the performance of oil-and-gas infrastructure assets, with an additional ¥30 billion contingency if the conflict's impact proves more prolonged. President Kenichi Hori framed the disruption as a source of demand for the trading houses' core competency even as he flagged the chokepoint risk: the principal danger lies in the potential closure of the Strait of Hormuz, through which a significant share of the world's oil and basic materials flow.
Cyclical Windfall Or Structural Re-Rating?
The honest answer is both - and the distinction determines how long the profits last.
The cyclical leg is clear and it is mean-reverting. Copper's 2026 spike was driven as much by a short-term inventory squeeze and tariff-driven front-running of US imports as by underlying demand. LME inventories declined for dozens of consecutive days, and the cash contract traded at a premium of as much as $478 a tonne over the three-month contract, the widest gap since the 2021 supply squeeze. War risk premiums in oil and gas are, by definition, transient: they collapse the moment supply routes stabilise. And the demand side is not unambiguously bullish - Goldman Sachs expects China's refined copper demand to have fallen 8% year on year in the fourth quarter of 2025 as the world's second-largest economy slows. A copper price built on a squeeze and a rush is a copper price that can unwind.
But there is a structural leg underneath the cycle, and it is the more durable of the two. The conflict is accelerating a permanent reordering of how nations and corporations approach critical supply chains - toward jurisdictional control over raw materials, processing capacity and manufacturing. Japan, which imports more than 90% of its crude from the Middle East through Hormuz, was forced to scramble for alternative sources when the war began; in April it imported the lowest volume of Middle East crude on record dating back to 1979, down 67.2% year on year to 3.843 million kilolitres, according to provisional Finance Ministry data. That kind of supply-chain trauma does not reverse when headlines calm. Companies will keep paying for diversified sourcing and hardened logistics long after the risk premium in the spot price has evaporated.
"Clients will look to us for diversified sourcing and for ways to harden their supply chains," said Sumitomo president Kenichi Hori, positioning the firm's logistics and trading expertise as a value-add in a disrupted market. Even a protracted conflict, he argued, creates opportunities to propose alternative supply-chain solutions to customers.
The second structural force is financial. Warren Buffett's Berkshire Hathaway has lifted its stake in the five houses to roughly 10%, having bought an extra percentage point in each of Mitsubishi, Marubeni, Mitsui, Itochu and Sumitomo. The group now ranks as Berkshire's second-largest geographic exposure after the United States at about $23.5 billion. That endorsement, combined with Japan's corporate governance reforms pushing higher returns on equity and capital recycling, has re-rated the entire sector. Mitsubishi now runs Japan's largest corporate buyback programme at around ¥300 billion a year and has authorised repurchases of up to ¥1 trillion in the current fiscal year. Mitsui targets net income of ¥1.1 trillion ($7.35 billion) and 12% return on equity by fiscal 2029 under its mid-term plan; Mitsubishi targets net income of ¥1.2 trillion and 12% ROE by fiscal 2027, backed by ¥3.3 trillion in growth investments.
The Second-Order Trade The Market Is Not Fully Pricing
The first-order story is obvious: higher prices, higher profits. The second-order story is that the sogo shosha are being repositioned - by their customers and by the market - as geopolitical risk managers rather than commodity traders. In a fragmented world where sanctions, export controls and chokepoint closures can sever a supply line overnight, the house with the deepest network of alternative suppliers, the most diversified asset base and the balance sheet to finance workarounds becomes a utility for supply-chain resilience. That is a different business from trading spreads, and it commands a different valuation multiple.
The evidence is in the positioning. Mitsubishi's LNG portfolio is among the most geographically diversified of the sogo shosha, drawing from Southeast Asian, Australian and legacy Russian sources - a deliberate hedge against any single route or jurisdiction. Itochu, the most profitable of the houses in fiscal 2025, derives approximately 85% of its consolidated net profit from non-resource segments, the highest ratio among the five, giving it an earnings engine that is significantly less volatile than its commodity-heavy peers. Marubeni is part of a consortium with the UAE's Masdar, TotalEnergies and Siemens Energy developing sustainable aviation fuel from methanol, and has explored using plastics to make SAF in Japan. These are not commodity trades; they are optionality positions on a world where supply chains are rewired for resilience.
That repositioning carries a higher multiple than pure commodity trading ever did. It also carries a different risk: if the world re-globalises, the resilience premium evaporates along with the war risk premium.
The Counter-Thesis
The strongest case against the record-profit thesis is simple and it deserves weight: the windfall is a cyclical spike sitting on a slowing Chinese economy, and it will unwind as fast as it arrived. If the Middle East conflict de-escalates, oil and gas risk premiums collapse. If copper inventories rebuild and the tariff-driven import rush ends, the metal falls back toward $10,000 a tonne. Mitsubishi itself flagged pressure from higher costs and weaker conditions in some businesses, including salmon farming and overseas grain trading - a reminder that not every line is benefiting from the rally.
The companies' own guidance assumptions reveal the fragility baked into the numbers. Marubeni models an extra ¥30 billion to ¥40 billion in earnings only if oil stays above the pre-conflict assumption of $60 a barrel, and it assumes the war will be resolved by the end of June. Sumitomo has set aside a ¥23 billion buffer for possible losses in Iraq, with an additional ¥30 billion contingency if the conflict proves more prolonged. These are not companies betting on permanent war; they are hedging against its duration, and their earnings models assume de-escalation within months.
The falsifying signal is quantifiable: if LME copper settles below $10,000 a tonne and Brent crude below $60 a barrel for two consecutive quarters, while Middle East shipping routes normalise and Hormuz flows recover toward their pre-conflict share of Japan's imports, the record-profit thesis reverts to mean. A sustained recovery in China's refined copper demand would soften the blow; a hard landing would accelerate it.
Outlook: Three Horizons
In the short term, the path is cyclical and volatile. Copper retreated from its September record as the squeeze eased and the dollar strengthened; energy prices whip on every Hormuz headline. Profit figures should be expected to fluctuate with the commodity tape, and the market's reaction to each quarterly print will track the spot price as much as the underlying strategy.
Over the medium term, the earnings floor is higher than it was five years ago. The five houses have used the windfall to repair balance sheets, lift shareholder returns and fund growth investments. Net debt-to-equity ratios across the sector sit conservatively between 0.41x and 0.68x, giving them room to absorb a downturn without retrenching. Mitsubishi's ¥1 trillion buyback and its record cash-flow forecast signal a commitment to returning capital even as it deploys ¥3.3 trillion in growth investment.
The long-term structural case rests on two pillars that do not depend on copper's spot price: supply-chain fragmentation, which keeps customers paying for resilience, and Japan's governance-driven capital discipline, which keeps cash flowing back to shareholders. Base case: profits moderate from record levels but settle well above the fiscal 2021 base as the structural premium persists. Upside case: a prolonged conflict or a fresh supply shock sends copper back above $15,000 a tonne and energy prices higher, extending the windfall. Downside case: rapid conflict de-escalation plus a China hard landing pushes copper below $10,000 and unwinds the rally.
What to watch: LME copper inventories and the cash-to-three-month spread; Brent crude and Hormuz shipping flows; the sogo shosha's quarterly guidance revisions; and whether buyback and dividend programmes hold through a commodity downturn.
The sogo shosha did not just get lucky with copper and conflict. They were built for exactly this moment - and the market is only now starting to price them as supply-chain utilities rather than commodity traders.
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