Key takeaways:
- Oil is the immediate focus: Prices have moved higher, but current levels still point to a limited, short‑lived conflict rather than a sustained energy shock.
- Broader market impact hinges on escalation: Risk assets, inflation expectations, and rate outlooks would only shift materially if uncertainty proves prolonged.
- Stay disciplined amid headline risk: Elevated uncertainty argues for diversification and a long‑term mindset, not reactive portfolio changes.
Negotiations between the U.S. and Iran over Iran’s nuclear capabilities faltered in the last week. This was followed by joint strikes led by the U.S. and Israel on strategic positions across Iran. Iran’s supreme leader, Ayatollah Ali Khamenei is among those killed in the conflict, and Iran has retaliated with strikes across the Middle East. This has led to a potential for escalation beyond the relatively short-lived recent conflicts between Israel and Iran seen in April 2024 and then 12 days of war in June 2025.
Initial focus on oil
At the time of writing on Sunday March 1st, from an investing perspective, the main focus is on the impact on the price of oil. Iran produces around 3-4% of global oil supply, but the regional spillover is already accelerating. Perhaps most notably, the strikes have led to what is essentially a halt of traffic through the Strait of Hormuz. The Strait of Hormuz is an oil transportation bottleneck in the Middle East through which roughly 20% of the world’s oil supply passes.
Oil prices likely to rise – but to manageable levels
While oil was mainly trading in the US$60-$70 range over the last 12 months, prices have already breached US$70 and are poised to trend higher with the start of trading on Monday. These moves are meaningful but not yet particularly worrisome in the broader scheme of investment implications. A continued increase to US$80 would be consistent with the June 2025 conflict, and US$90 consistent with April 2024, when global markets were able to largely shrug off the price rises as the conflicts were resolved in relatively short order. As a rough proxy for a major conflict, the Russian invasion of Ukraine in early 2022 brought oil prices above US$100 for a prolonged period with brief peaks above US$120. Oil prices as they stand are pricing in a limited conflict of relatively short duration.
What to watch if uncertainty persists
There are additional key market transmission channels to monitor if uncertainty persists. Broader uncertainty suppresses investor sentiment, which can broadly weigh on risk-assets globally. This would likely make global developed market sovereigns, including U.S. Treasuries, and safe-haven currencies more attractive. In a prolonged period of uncertainty, increases in oil prices could generate a global inflationary scare, which in turn may reduce the likelihood of interest rate cuts by the U.S. Federal Reserve, currently expected for later this year.
Long-term trends vs short-term volatility
However, such large shifts in market dynamics would require a long-running escalation of the conflict. At this stage, this is not our base case. Investors should recognize that in the immediate aftermath of an event of this scale there will be a jarring set of headlines and we are seeing high, potentially peak, uncertainty.
As always, we advocate for taking a long-term view to investing rather than reacting to near- term volatility. This means maintaining well-diversified portfolios including high-quality safe-haven assets able to weather short-term uncertainty. It also means staying invested, rather than trying to market-time geopolitical realignment and the associated risk. Instead, we believe in maintaining exposure to the long-term secular growth trends that will continue to shape markets globally.
Diversification: A portfolio construction approach that spreads exposure across asset classes or regions to reduce the impact of individual risks.
Market transmission channels: The mechanisms through which geopolitical or macroeconomic events affect financial markets, such as sentiment, inflation expectations, or interest rates.
Near‑term volatility: Short‑lived fluctuations in asset prices driven by news or events, rather than changes in long‑term fundamentals.
Risk assets: Investments that tend to underperform during periods of heightened uncertainty or market stress.
Safe‑haven assets: Assets, including U.S. Treasuries and certain currencies, that investors typically favor during periods of geopolitical or financial uncertainty.
Secular growth trends: Long‑term structural forces shaping economic and market outcomes, such as technology adoption or demographic change, that persist beyond short‑term cycles.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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