Over the weekend, the world woke up to another spike in geopolitical tension.
Coordinated strikes by the US and Israel on Iranian military infrastructure were followed by retaliatory missile activity across parts of the Middle East. Unsurprisingly, markets reacted quickly — oil prices jumped, gold moved higher again, share markets softened and investors shifted some capital toward safer assets like government bonds and the US dollar.
Whenever global conflicts emerge, markets tend to do what they always do first: react quickly to uncertainty.
But once the initial headlines pass, investors start asking a more important question — what does this actually mean for the global economy and markets going forward?
Why everyone is watching the Strait of Hormuz
One of the key concerns right now centers around the Strait of Hormuz — a narrow shipping channel in the Middle East that acts as one of the world’s most important energy arteries. Roughly a third of global seaborne oil shipments pass through this route each day, along with significant volumes of liquefied natural gas. If shipping through the region were disrupted for an extended period, energy prices could rise further and potentially push inflation higher again globally. That’s why oil prices reacted quickly when the news broke. That said, energy markets are often more resilient than the headlines suggest. Other oil-producing nations have already begun increasing production, and global supply tends to respond quickly when prices rise.
What markets are trying to price in
At this stage, markets appear to be treating the situation as a risk premium event, rather than assuming a major global economic shock.
Broadly speaking, investors are weighing three possible outcomes:
- Contained tensions – The most likely scenario. Retaliation remains limited, energy flows continue and markets gradually stabilise after initial volatility.
- Prolonged disruption – If shipping through the Strait of Hormuz were significantly impacted, oil prices could move higher and global growth may slow.
- Rapid de-escalation – Diplomatic channels calm tensions quickly, energy prices ease and equity markets rebound.
The key variable across all scenarios is duration. The longer disruptions last, the greater the economic impact.
Why gold, oil and defensive assets are moving
During periods of geopolitical uncertainty, investors typically shift toward what are known as “safe haven” assets.
That’s why we’ve seen:
- Gold continue its strong run, benefiting from uncertainty and inflation concerns
- Government bonds strengthening, as investors seek stability
- The US dollar rising, as global capital moves toward perceived safety
At the same time, sectors linked to energy production and defense spending tend to attract more attention during these periods.
What history teaches us about geopolitical shocks
Despite the dramatic headlines that often accompany geopolitical conflicts, financial markets have historically proven remarkably resilient. In many past conflicts — including the invasion of Ukraine in 2022 and previous Middle East tensions — share markets initially fell before stabilising once investors realised the economic fallout would likely be contained. Interestingly, even prolonged conflicts in major oil regions don’t always lead to sustained price spikes. During the Iran-Iraq war in the 1980s, oil prices ultimately fell as global supply increased and demand weakened. The key takeaway is that markets often adapt faster than expected.
Why diversification matters most in times like this
Periods of uncertainty are exactly why diversified portfolios are so important.
Different assets respond differently to global events. While equities may experience short-term volatility, other parts of portfolios — such as bonds, commodities, infrastructure or alternative investments — can behave very differently. By spreading investments across a wide range of asset classes, regions and strategies, portfolios are less dependent on any single outcome. This helps smooth returns over time and allows portfolios to navigate periods of volatility more effectively.
Our focus remains on the long term
Geopolitical events are impossible to predict, and reacting emotionally to market movements rarely leads to good investment outcomes. Instead, our focus remains on what we can control — maintaining diversified portfolios, monitoring economic conditions closely and adjusting positioning where opportunities emerge. Market volatility can feel uncomfortable in the moment, but history consistently shows that disciplined long-term investors are often rewarded for staying invested.
If you’d like to talk through how these developments relate to your portfolio, please don’t hesitate to reach out.