Markets and the Israel-US-Iran War: What it means for investors
Geopolitical shocks are unsettling, and the weekend’s escalation involving Israel, the United States and Iran has understandably raised concerns. Market reactions have been sharp especially in oil and traditional safe haven assets, but history shows that such volatility is usually temporary rather than transformational. Diversified portfolios are built precisely for periods like this, and the evidence suggests staying the course remains the most effective long-term approach.
Duration: 5 Mins
Date: 02 Mar 2026
Why have markets moved?
Oil is almost always the first market affected by Middle Eastern conflict because around a quarter of the world’s seaborne crude passes through the Strait of Hormuz, a narrow corridor adjoining Iran. When conflict threatens this chokepoint, traders immediately price in supply risk, raise insurance premiums, and pause or reroute tanker traffic. Following the strikes, Brent crude briefly pushed into the high $70s and low $80s as some vessels slowed or avoided the Strait altogether. Bloomberg reported tankers “increasingly avoiding” the passage, while energy analysts warned of a widening “escalation cycle.” The Financial Times also highlighted surging oil and gas prices, noting that energy markets now hinge on whether shipping remains uninterrupted.
How serious could the oil shock be?
The range of possible outcomes largely depends on duration and actual physical disruption, not headlines alone. Bloomberg analysis shows Brent drifting toward $80 as traders reassessed supply risk, but with meaningful spare capacity in Saudi Arabia and the possibility of strategic stock releases acting as shock absorbers. A more adverse scenario outlined by Bloomberg suggests that if Iranian exports were fully disrupted for an extended period, crude could average in the $70s–$90s later in the year. Still, this would require significant, lasting supply outages rather than temporary tanker caution. Reuters summarises the broader consensus: a contained conflict may push Brent near $80, while a sustained interruption to shipping could lift prices toward $100 and temporarily increase global inflation by 0.6–0.7 percentage points.
What history tells us
From the Gulf Wars to previous Iran tensions, history strongly suggests that markets recover faster than many fear. MSCI research shows that in six of seven major Middle East crises since 1970, US equities were higher a year later. The exception being the 1973 oil embargo, which occurred alongside already soaring inflation and recession. Today’s global economy differs significantly from the 1970s: central banks have stronger inflation fighting credibility, economies are more energy efficient, and supply is more diversified particularly with the US now a major crude exporter.
Inflation and central banks
While oil spikes can lift headline inflation quickly, central banks tend to “look through” temporary energy shocks. Federal Reserve research shows a large oil price increase in 2022 added about 1 percentage point to US headline inflation but had only a small effect on core inflation and real activity. Fitch modelling indicates that even with oil averaging $120, global growth might be reduced by about 0.4 percentage points, with the effect fading the following year. In short: oil matters, but unless disruption persists for months, the macro impact is usually modest and reversible. Europe and the UK, energy and shipping factors For Europe and the UK, oil matters but so do maritime logistics. Over the last year, Houthi attacks around the Red Sea and Suez corridor forced ships to reroute around Africa, raising freight and insurance costs and extending delivery times. This has been a reminder that shipping disruptions whether in the Red Sea or Hormuz can filter into goods inflation and supply chains even outside the energy sector.
What would turn this into a longer lasting shock?
Three developments would warrant concern:
- A sustained halt in Hormuz shipping, visible in tanker traffic data rather than speculation.
- Direct, lasting damage to major Gulf energy infrastructure, lengthening supply outages.
- Policy error, such as overtightening into a supply shock. At present, central banks appear committed to distinguishing temporary energy volatility from underlying inflation trends.
Portfolio positioning is key to successful time in the markets
All of the MPS solutions managed by Aberdeen are very well diversified. Our strategic asset allocation process is designed to spread risk across asset classes, geographies and currencies to help protect clients’ capital in periods of volatility while aiming to deliver strong risk adjust returns over the medium to long term. For portfolios’ where it is appropriate, we also have a tactical asset allocation process, which is currently tilting portfolios towards shorter-dated UK and Global government bonds. We are confident that this strategic and tactical positioning will help limit drawdowns in client portfolios over the shorter term and will enable these mandates to bounce back once the uncertainty around this conflict has passed.
Aberdeen Portfolio Solutions Limited offers a range of portfolio strategies for adviser firms, with a choice of management styles and risk levels to meet clients’ investment needs.Find out more about how Aberdeen MPS can support your adviser firm.
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