In a significant development, the United States launched airstrikes on three of Iran’s nuclear facilities – Fordow, Natanz, and Isfahan – early Sunday morning. The operation, named ‘Midnight Hammer’, involved the deployment of 14 bunker-buster bombs, targeting suspected underground nuclear infrastructure.
The strikes mark a major escalation in the region, with the US now directly involved in military operations. President Trump, in a series of social media posts, described the mission as a success. Iran’s response so far has been limited, with a small number of missile and drone attacks launched against Israel.
The situation, however, remains fluid and we are monitoring developments closely for signs of further escalation or diplomatic resolution.
Oil, inflation and market sensitivity
Markets have responded cautiously to the news, with equity and bond markets weakening only modestly. Importantly, interest rate expectations in the UK, US, and Europe remain largely unchanged, suggesting central banks are not yet adjusting their outlooks in response to these events.
However, the most immediate risk is the potential impact on oil prices. A key concern is whether Iran may attempt to close the Strait of Hormuz, a vital shipping lane through which around 20% of global oil supply flows. A disruption here could significantly reduce global supply and push oil prices higher.
This, in turn, could fuel global inflation and lead to central banks to maintain interest rates at elevated levels for longer. A ‘higher for longer’ scenario could weigh on global growth and put pressure on both equity and bond markets.
There are, however, important stabilising factors. China receives nearly 50% of its oil imports through the Strait, which may prompt diplomatic pressure from Beijing to keep the route open. The area is also a heavily patrolled zone by Western naval forces, specifically to prevent such disruptions.
Staying focused on the long-term
While geopolitical events can cause short-term volatility, history shows that markets often stabilise once the initial uncertainty passes. At Aberdeen, our MPS solutions are built with diversification at their core to help cushion portfolios against unexpected shocks. For example, infrastructure assets, used within our portfolios, tend to perform well in inflationary environments, offering a degree of protection if inflation rises.
We remain focused on delivering strong long-term outcomes and will continue to keep you informed as the situation evolves.
abrdn 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. To find out more, go here.
Find out more about how Aberdeen MPS can support your adviser firm.
Past performance does not predict future returns. The value of investments, and the income from them, can go down as well as up and clients may get back less than the amount invested.
The views expressed in this article should not be construed as advice or an investment recommendation on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information is being given only to those persons who have received this document directly from Aberdeen Portfolio Solutions Limited and must not be acted or relied upon by persons receiving a copy of this document other than directly from Aberdeen. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of Aberdeen. The information contained herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by us to be reliable but is not guaranteed as to the accuracy or completeness.
Any data contained herein which is attributed to a third party (“Third Party Data”) is the property of (a) third party supplier(s) (the “Owner”) and is licensed for use Aberdeen*. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Aberdeen* or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.
Aberdeen means the relevant member of Aberdeen group, being Aberdeen plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.