What war in Iran means for global markets

Toby Gibb, Head of Investments 

Before turning to investment matters, it is important to acknowledge the human cost of the conflict in Iran. Our thoughts are with all those affected. 

From an investment perspective, the situation presents real challenges. The duration of the conflict remains uncertain. While some expect a resolution may come within weeks, the range of possible outcomes is wide. Energy prices have moved higher, with oil & gas markets reacting to the risk of sustained supply disruption, particularly around the Strait of Hormuz.  

That feeds directly into inflation concerns. We have already seen bond markets reprice rate expectations, with cuts now largely priced out for this year. How central banks respond will depend on whether these price pressures prove persistent or transitory, which in turn depends on how the conflict evolves. This is something none of us can predict with confidence. 

It is also worth stepping back and recognising that markets have been strong coming into this episode. Economic data through 2026 has been supportive, credit markets have been well behaved and equity valuations in many areas have re-rated significantly. That strength provides context but also demands discipline. 

What comes through clearly in the comments below is that our fund managers are sticking to their processes, with a resolute focus on company fundamentals. They are not attempting to trade geopolitical outcomes but are staying alert to the opportunities that periods of dislocation can present – whether that is adding selectively to credit, or recycling capital into more attractively valued areas of the equity market. That is exactly the approach we would expect. 

Ed Legget & Ambrose Faulks, UK equity managers 

In the short term, we have no more insight than other market participants into how this plays out. On a two-to-four-week view, we would make the following points: 

• Iran’s response has increased the chance that other countries get involved in seeking to neutralise the potential threat from what remains of its military. With the US and Israel already degrading the Iranian military every day, any other countries joining in will only accelerate the demise. 
• Closing the Strait of Hormuz also closes off 90% of Iranian oil & gas exports. Prior to this, the economy was on its knees. Losing 85% of your export revenues could well prove existential for the regime which will need to write more cheques than normal to buy loyalty. 
• China relies heavily on exports from the Middle East for both oil & gas – it won’t want prices to remain high for too long.  
• Trump has the mid-terms coming up – he needs a deal, lower oil prices and something he can sell as a win.  

Net, it feels like all sides in the conflict need a de-escalation on a three-to-four-week view, possibly sooner.  

Away from the equity market, the moves have been more puzzling, particularly in bonds where both the short and long ends of the curve have moved substantially higher in Treasuries and gilts.  

We can see how a spike in short-term commodity prices will affect inflation if sustained, but we find it hard to see how central banks would not look through this in the short term. Higher commodity prices and lower long-term growth should also in our view lead to lower growth and in turn lower inflation into the medium term, again leading to lower not higher long-term rates. 

Perhaps the bond markets are worrying that lower rates will make the challenge of fiscal consolidation near impossible for western governments?  

Impact on the UK economy 

Clearly, this will depend on where commodity prices go – but in the short term we don’t see much impact. $83 oil will lead to a higher fuel price at the pump, but the impact will be dampened by the high proportion of tax in the price.  

Utility bills are priced quarterly – we already know the price cap for April is moving lower, so any changes will feed through in July when demand for gas is low anyway. By then there should hopefully be a lot more clarity on the Middle East.  

On numbers, we have seen the price rises of both oil & gas have the potential to add 0.3 to 0.4 percentage points to UK CPI if they are sustained for the rest of the year.  

Net, we don’t see a huge impact on the UK consumer and don’t expect a material change in the direction of UK monetary policy (perhaps one fewer cut – the bond market is now pricing in one cut by the year end rather than two as it was a couple of week ago). 

Stephen Snowden, Head of Fixed Income 

It’s not easy to predict the market given the news on Iran. For the gilt market, the good news for the prime minister was that Iran has kicked Mandelson etc off the news agenda, for now.  

The chances of a leadership contest before the May local elections now feels very low. That should subdue domestic political volatility for a couple of months. Economic data has been Goldilocks-esque in 2026, with inflation mostly well behaved, especially in the UK, and economic activity indicators coming in healthy.  

Iran causes uncertainty, but not wishing to lack empathy, conflict and concerns about the Middle East are a constant risk for markets. As serious as this situation is, I don’t see it turning into a major macro-economic shock. The biggest risk to markets remains AI disruption. We are seasonally in the weakest period for credit markets, sell-offs are common in February and March and typically offer a good chance to buy the dip. And that is what we did on the first day of March. 

Finally, the market response this time around has been all about energy prices/inflation impact. The ‘positive’ from this is it means we can worry less about the extreme tail of inflation as we saw in 2022. 

Recent events involving Iran have added uncertainty to markets. The past few days have exposed the complacency around risks and the over optimism towards equities in general. 

Raheel Altaf, emerging markets equity manager 

History suggests regional conflicts tend to harm asset prices if they affect global growth, inflation or financial conditions. At this early stage, conclusions remain unclear.  

The near-term focus has been on energy: the Middle East remains central to oil supply and price reactions have been swift. Increased energy exposure last year on valuation and cashflow grounds rather than geopolitical predictions has helped cushion recent volatility somewhat.  

Markets occasionally fall sharply. Yet over time, they tend to deliver solid returns. While logic suggests adding to investments during downturns, human instinct typically does the opposite – pulling back after falls and piling in after rallies. Although academics have long advised against this behaviour, it is hard to override human nature. We believe a systematic framework helps overcome some of these biases. 

Emerging markets tend to be sold indiscriminately in risk-off periods. However, they enter this period in relatively strong shape. Many are commodity exporters with strengthened balance sheets, stronger reserves and high real interest rates. 

Importantly, we have made no major changes in response to headlines. We remain patient, focused on company fundamentals and prepared to adjust only if evidence emerges of diminishing opportunity for our holdings. Complacency in markets and overvaluation could present significant risks in the months ahead. We continue to prefer a margin of safety through lower valuations.