The Lloyds (LSE:LLOY) share price has been on a wild ride in recent months. After hitting 112.6p per share in early February, it declined sharply as the Iran War began, worsening investor concerns over the economic outlook. It’s since stabilised after plunging to 90.44p in late March, and was last at 97.94p.
But the risks are growing rapidly for the FTSE 100 bank. And while predicting near-term price movements is a tricky business, I think Lloyds shares might plunge again before too long. Want to know why?
War threats
The biggest threat right now is a prolonged conflict in the Middle East. A war that lasts months could give energy prices a considerable price boost as supply disruptions increase. This has the power to supercharge inflation and weigh on economic growth.
The Strait of Hormuz remains largely closed as Iran threatens maritime traffic, impacting oil shipments. And supply dangers are growing as key energy facilities in the region become increasingly targeted. Just this weekend, the Kuwait Petroleum Corporation reported “significant material losses” from Iranian drone attacks.
The problem is that neither the US, nor Israel and Iran are showing signs of backing down, meaning a period of elevated oil prices is possible.
Double-edged sword
For Lloyds, this has the power to fuel a significant share price correction. Its 80% rise in 2025 reflected growing expectations of falling interest rates in the UK. In this environment, retail banks can experience a strong rise in loan demand along with falling credit impairments.
It stands to reason that the bank could reverse in value as interest rate hopes dwindle. In fact, the market is now pricing in two interest rate hikes before the end of 2026 when reductions were previously tipped. An enduring conflict will naturally drive speculation of further earnings-denting interest rate increases.
It’s important to note that rising interest rates are a double-edged sword for banking shares. They can hit customer demand and drive bad loans higher, but they can also boost net interest margins (NIM). The reason? The likes of Lloyds tend to pass on higher interest rates more slowly to savers than borrowers, and bank the difference.
But in the current climate, with UK citizens already experiencing a cost-of-living crisis, the benefits of any rate rises threaten to be swallowed up by the drawbacks.
What next for the shares?
So what could this mean for the Lloyds share price? Considering the FTSE 100 bank still carries a premium valuation, there’s a very real possibility of a fresh price drop.
Today the firm’s price-to-book (P/B) ratio is 1.4, still above the 10-year average of 0.9. To bring the ratio back to this level, Lloyds would need to reverse to 62.95p. That’s 36% below current levels.
As I say, forecasting near-term share price movements is tricky. But right now, investors need to seriously consider that Lloyds shares could slump again. For this reason I’m looking for other shares to buy.
