Geopolitical tensions have once again moved to the centre of the market narrative following the strikes by the United States and Israel on Iran. Energy markets reacted immediately: natural gas prices surged by nearly 60%, while oil has risen by roughly 30% within just a few days.
The trigger is clear. Traffic through the Strait of Hormuz — one of the world’s key energy chokepoints — has declined sharply, while storage infrastructure across the Gulf is approaching capacity limits. Under these conditions, any prolonged disruption to trade flows could quickly translate into production cutbacks.
Although the global economy is less dependent on oil than it was in previous decades, the world’s energy system still relies heavily on the concentrated flow of oil and gas from the Persian Gulf. It is therefore unsurprising that markets are currently incorporating a meaningful geopolitical risk premium into prices.
That said, it is important to separate noise from structural change. So far there has been no significant destruction of energy infrastructure and no permanent disruption to supply. The shock we are observing is primarily logistical and geopolitical in nature.
An energy shock — but probably not an oil crisis
Energy models suggest that a temporary reduction in regional supply of roughly four million barrels per day could push oil prices towards the $100–120 per barrel range. However, those levels would sit well above the price justified by underlying fundamentals, which still point to an equilibrium closer to $60.
In other words, most of the current move reflects a geopolitical risk premium.
Our central scenario remains that the conflict will be limited in duration and that the energy impact will be intense but ultimately temporary. This baseline allows for episodic spikes in oil prices — such as the move towards $120 per barrel seen this morning — but assumes that prices stabilise closer to $80 during the first half of 2026.
Under such a scenario, the macroeconomic impact would likely remain moderate. Global growth could slow by around 0.6 percentage points on an annualised basis, while inflation could rise by slightly more than one percentage point.
A shock of this magnitude, on its own, has historically not been sufficient to derail a global expansion.
A market forced to reassess positioning
What has changed more immediately is investor positioning.
The market consensus for 2026 had been clearly pro-cyclical: long global equities, diversification into Europe and emerging markets, short USD positions, long gold exposure, carry strategies in emerging market currencies and rates, and overweight allocations to credit.
The geopolitical escalation has triggered a rapid unwinding of part of that positioning. The dollar has once again demonstrated its safe-haven status, while the rise in volatility has led to episodes of systematic deleveraging.
These kinds of positioning “washouts” tend to be painful in the short term, but they often create opportunities over the medium term.
The three forces likely to limit the duration of the conflict
The most probable scenario remains a relatively short conflict. Three forces point in that direction.
The first is logistical and military capacity. Prolonged operations tend to run up against constraints in munitions, logistics and operational capacity.
The second is the economic cost of a sustained disruption to energy flows through the Strait of Hormuz. A prolonged closure would carry global economic consequences that create strong incentives for de-escalation.
The third is the US political calendar. The economic and energy costs of a prolonged conflict tend to become politically unsustainable over time.
Taken together, these three forces — what some analysts have described as the “three M’s”: munitions, markets and midterms — act as a natural constraint on the duration of the conflict.
Macro implications: moderate impact, but higher uncertainty
The primary macro transmission channel remains the price of energy.
In a scenario where geopolitical risk persists, oil and gas prices are likely to remain above previous forecasts for some time. However, historical experience suggests that oil price increases in the range of 40–50% do not typically cause a significant deterioration in business confidence unless they persist for many months or coincide with a broader military escalation.
For that reason, the most likely macro outcome is a modest inflationary shock combined with a mild slowdown in growth.
Central bank reactions will depend largely on the duration of the energy shock. If the conflict were to persist and recession risks were to rise, policymakers would likely prioritise growth and adopt a more accommodative stance. If, by contrast, oil prices remained elevated for several months without a significant deterioration in growth, the balance between inflation and growth considerations would become more complex.
Investment strategy
From an investment perspective, the current episode appears more like a positioning adjustment than a structural change in the global economic cycle.
Geopolitical volatility is likely to keep a risk premium embedded in energy markets for some time. However, our central scenario remains compatible with continued global economic expansion.
In this context, the most sensible approach is to avoid overreacting to what is likely to be a temporary shock. Maintaining exposure to risk assets, incorporating tactical hedges against volatility, and using positioning washouts to build medium-term exposure remains the most appropriate strategy.
Market history shows that geopolitical shocks often generate sharp short-term volatility, but they rarely alter the long-term trajectory of economic fundamentals.
For now, there is little evidence to suggest that this episode will prove to be an exception.