Lloyds Shares (LSE:LLOY) are taking a huge hit as the war in the Middle East escalates. They have fallen back below the critical level of 100p per share and – at 94.3p – are down 5% since January 1.

After last year’s stunning gains, do City analysts think the party is over for Lloyds and its share prices? The low answer seems to be a resounding no.

Currently, eighteen brokers have ratings of FTSE100 bank. The average 12-month price forecast for this group is 117.5p, an boost of 25% on today. One analyst believes it will reach 131p next year, an boost of 39%.

But with economic and inflation uncertainty rising, how realistic are these bullish forecasts?

What is the risk?

Lloyds isn’t the only stock losing as oil prices rise. Global stock markets are in complete retreat as rising energy prices boost inflation pressures, reducing the risk of central banks cutting interest rates.

Ebury analyst Matthew Ryan says further Bank of England rate cuts ‘are completely off the table for now“. Don’t forget that a cut in interest rates to fresh multi-year lows of 3.5% seemed a reality as recently as March 1. Some analysts believe that interest rate increases will even be possible if crude oil, which rose at its fastest pace in six years on Monday (March 9), continues to rise.

But aren’t higher interest rates good for banks, you ask? And if so, why is the Lloyds share price plummeting? It is true that higher central bank interest rates stimulate retail banks by increasing their net interest margins (NIM). This key profitability indicator measures the difference in the interest rates they offer savers compared to what they charge borrowers.

The problem is that interest rate changes are sophisticated. Higher interest rates, while increasing margins, can also hamper economic growth, hurt income growth and cause value loss. Moreover, Lloyds is most exposed to the UK housing sector and has almost 20% share of the mortgage market. It is therefore particularly vulnerable.

What about pricing?

Against this backdrop, I believe Lloyds shares may struggle to deliver the eye-popping price growth that analysts are predicting. But that’s not all – today it remains the most high-priced bank in London, which may limit the scope for further price increases. This valuation could even see it fall more sharply than the broader sector if market confidence continues to decline.

Today, the bank has a price to book value ratio (P/B) of 1.3. It’s above Barclays‘ 0.9 i NatWestit’s 1.2. This is also above Lloyds’ long-term average of 0.9.

A quick resolution – which we all hope for on humanitarian grounds – to the conflict in Iran could support the Lloyds share price regain momentum. However, given that the bank also faces other dangers, such as rising fines for motor vehicle financing misconduct and increasing competitive pressures, I’m not sure this number will continue to rise.

More adventurous investors may want to consider Lloyds shares. However, I think I found a better stock today to buy on the dip.