War is just another uncertainty

With Middle East conflict flaring up (again), oil and geopolitical risks are dominating the headlines. But after weathering a steady stream of shocks over the past couple of years, markets have shown surprising resilience. As dramatic as the present news cycle is, investors with diversified portfolios should think twice before taking knee jerk action - and instead stay the course.

02 March 2026

The crisis in the Middle East turned into outright conflict over the weekend as the US and Israel pummelled Iran with air strikes and the latter retaliated with its own bombardment against US allies across the region. For investors of course, this raises questions on a number of levels, including but not limited to: the fate of Iranian oil production, the status of the Strait of Hormuz (through which a fifth of all oil production passes), the potential or otherwise for oil prices to be contained and the implications for inflation and central bank policy in the major developed economies.

Oil supply risks – serious, but more manageable nowadays

Much of course depends on the duration of the conflict and this remains an unknown given that precise US-Israeli objectives are not wholly clear. A Venezuela-type approach would keep the regime in place, albeit brought to heel, and is likely the best outcome. But other, more dramatic outcomes are of course possible. Investors at this point should draw reassurance from a couple of sources. Firstly, global oil supply is more diversified and resilient than it once was. Major non-OPEC producers such as the US and Brazil have expanded output significantly over the past decade. For example, the US shale complex now makes up for around two thirds of all US crude oil output. Furthermore, while the Strait of Hormuz is important, tankers can re-route - for example using the Red Sea - and use alternative sources of supply. For its part OPEC+ has sought to raise production as a stabilising move given that Gulf oil shipments were already being disrupted before hostilities began. And Saudi Arabia has a history of acting unilaterally to bring stability to oil markets.

Stockmarket resilience has become more of a norm

This brings us to world stockmarkets. Economists are generally agreed that a USD 10 increase in oil (WTI crude oil currently at circa USD 72*) can probably be sustained without disrupting the world economy and businesses. Beyond the oil point though, there is no undue cause for alarm. Veteran investors will remember how in March 2003, markets went from volatility to an outright rally once the invasion of Iraq began, simply because the uncertainty element had been removed. And on that point, even if uncertainty persists around Iran, markets are likely to be less worried about it than they used to be. The Global Economic Policy Uncertainty Index, as the name suggests, measures policy uncertainty and historically it had a tight relationship with market volatility as measured by the VIX ‘fear gauge’ index – up until 2022. The relationship broke down partly because policy uncertainty of late has been broad-based rather than market-specific if one considers the trade wars, geopolitical tensions and fiscal strains that have dominated headlines. Similarly, equity markets for their part have become more immune to the sheer number of shocks in recent years, whether the pandemic, Ukraine or the drama in US politics. War is unquestionably serious and tragic, but, for already well-diversified investors this is not an immediate call for portfolio action.

Bored of uncertainty: markets stopped worrying about uncertainty from 2022:

From 31 Dec 2002 to 31 Oct 2025