US-Israel-Iran

Over the weekend, the US and Israel carried out joint strikes on Iran after several weeks of rising tensions. The primary target was Iran’s Supreme Leader, Ayatollah Ali Khamenei, whose death has been confirmed. In response, Iran has targeted several neighbouring Gulf states allied to the US. Supporters of the Iranian regime and its proxies have also been drawn into the conflict in countries including Lebanon. Iran has effectively closed the Strait of Hormuz by threatening to attack any vessel attempting to pass through it. The channel is a key chokepoint for global supplies of oil and liquified natural gas (LNG) from the Middle East to other regions. In a precautionary measure to prevent damage, Qatar has closed its main liquefaction plant for LNG production.

Ultimately, no one knows what the military objectives of the US and Israel are, nor how Iran and its proxies might react. The pursuit of full regime change in Iran could well lead to a more protracted stand-off. The US has stated that its military campaign might last for four to five weeks. 

Sadly, we also don’t know what the humanitarian toll of this conflict will be.

In response to supply disruption, oil prices have jumped around 15% since Monday. Natural gas prices in the UK shot up by around 75%, given that the UK has limited storage facilities. 

Equity markets were initially mixed at the start of the week with no pronounced moves. However, Japan’s Nikkei 225 fell heavily on Tuesday and led European exchanges lower. The FTSE 100 was down around -3%, marking the biggest one-day fall since April. These moves are not insignificant. But to put them in perspective, many equity markets fell by similar amounts or more when President Trump announced his new global tariff framework in April 2025 – on what he termed “Liberation Day”.

Unsurprisingly, a commonly-tracked measure of US equity market volatility – the VIX – has also jumped from its longer-term average of around 20 to around 25. Although such measures are not extreme – the VIX hit 52 around Liberation Day and over 80 during the Covid-19 pandemic – they tend to mask detail. 

Airlines and other transportation stocks are highly sensitive to higher oil prices. Similarly, aircraft engine manufacturers who receive servicing payments for hours flown, or freight handlers, may be negatively impacted in the short term. On the other hand, many defence stocks have surged. 

Some governments have seen the cost of their borrowing increase a little. For example, the yield on 10-year US treasuries has climbed from around 3.95% to a high of 4.11%, before falling back a touch at the time of writing. The same figure for UK gilts has gone from a low of around 4.22% - having fallen steadily over much of February – back up to a peak of more than 4.5%, before falling back to around 4.4% at the time of writing. 

As a safe-haven asset, gold initially rose by as much as +3% but has since shed some of these gains. It is still trading over $5,100 per troy ounce. Investors have been keen to hold gold in recent years, in part to hedge against geopolitical risk, and its price has surged. Its current price moves should be viewed within this longer-term perspective. The structural reasons to hold gold appear intact.

The US dollar is perceived as a safe-haven asset. In periods of geopolitical stress, it often strengthens against other currencies. Investors may have also required dollars to buy other assets, including gold and oil, and potentially to hedge other risks in their portfolios. The current strength of the dollar against other currencies is therefore not surprising.

It is too early to say with any certainty.

Near term, the impact of a rise in oil and gas prices will likely be limited. But the longer the conflict persists, the more costly it may become.  As the US has stated that its campaign may last for four to five weeks, investors should perhaps prepare for a period of volatility.

Tankers carry around 20m barrels of oil per day – c.20% of the world’s oil supply - through the Strait of Hormuz. Although some are still crossing, the channel is effectively blocked.  The Organisation of the Petroleum Exporting Countries (or OPEC) – of which Iran is a member – has already committed to increasing oil production by 206,000 barrels per day from April. This demonstrates the significant slack in global oil markets. In a prolonged conflict, however, it is unlikely to offset the shortfall cause by the Strait’s effective closure, as most of OPEC’s production growth would come through the Strait. Similarly, the ability of different countries to overcome LNG supply constraint centres around three things: each country’s energy mix; the amount it holds in storage; and whether it can partially source it from elsewhere. In Europe, the winter season is largely over and so stockpiles and a falling demand for energy may help soften any impact.

A combination of a prolonged disruption to energy markets and supply chains has the potential to stoke inflation, at the margin. Although the world’s economy may not be quite as dependent on oil as it once was, high oil prices are effectively a tax on consumption, given that oil is an input cost in so many services and products. 

Higher energy prices can pass through to consumer prices relatively quickly. In the UK, the idiosyncrasies of our energy market may mean that this price impulse is felt more keenly. It is possible that the threat of higher energy prices fuelling inflation could dissuade policymakers at the Bank of England from cutting interest rates on 19 March. Prior to the weekend a March rate cut had been seen as a near certainty, but market pricing has since moved notably. The UK’s current rate of economic growth is modest at around 1.1%. If this conflict sees activity slow or contributes to higher government borrowing costs through higher gilt yields, the roughly £23bn of fiscal headroom that Chancellor Reeves has built up could easily disappear. Higher-for-longer interest rates might themselves also dent economic growth.  In short, this conflict is an unwelcome complication for the UK’s economy.

Of course, wars are expensive. The US may see its fiscal situation worsen in the medium term if it spends freely on a prolonged campaign. The American electorate may also baulk at the prospect of protracted involvement in another overseas war. Should the toll of American casualties mount, this conflict may impact how Americans vote in November’s mid-term elections. Voters have the power to curb President Trump’s authority in the House and the Senate. The Republicans will be watching Trump’s approval ratings very closely.

China has so far been measured in its response, calling for de-escalation. President Trump is due to visit Beijing at the end of March, and for the time being both sides appear keen to avoid stoking further trade or political tensions between the two nations. As the primary buyer of Iranian oil, a prolonged closure of the Strait of Hormuz may test China’s energy security. 

Finally, many of the world’s wealthy and internationally-footloose may now be reconsidering living in the Gulf states. Sadly, many expats living in countries such as the UAE may no longer feel as safe as they once did. 

First, we recognise that such conflicts always have a heavy humanitarian cost and we keep this front and centre of our thoughts for anyone who is affected by these events.

From an investment perspective, it is still too early to weigh up the situation with confidence. Much depends on how long this current conflict lasts and how much other countries, and their broader allies, are drawn into it. We should also not lose sight of other important market drivers, including the adoption of AI across economies and its potential to revolutionise productivity. Or the complexity of the US’s own tariff regime which is causing companies considerable uncertainty.

Multi-asset portfolios hold different types of investments exactly for times like these. Different combinations of equities, bonds and alternatives – including commodities such as gold and oil – can help to protect portfolios in downturns. Equally, some companies and sectors may be set to benefit from the current volatility. Others may see their share prices fall indiscriminately, even though their business models may be largely unaffected in the long-run. This represents a potential opportunity for long-term investors.

Perspective is key. It is difficult to see past significant events such as those unfolding in the Middle East right now. A powerful confluence of factors is at play, and we believe investors will be best served by focusing on tried and tested methods: time in the market, not timing the market; diversification; and sticking to a long-term plan.

Our investment team remains laser-focused on fundamental analysis. We continue to assess economic data and company fundamentals to select what we believe offer the best risk-reward investments for our clients. 

This article was written on 4 March 2026

Important information

Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This podcast is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, TrinityBridge accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.