Iran conflict poses risks to global markets through oil price shocks
Iran conflict poses risks to global markets through oil price shocks
With missiles flying across the Gulf amid tensions and a US/Israeli-led conflict with Iran that began on February 28th, oil has become the primary driver of stock markets in recent weeks.
Due to the risks posed by Iranian military action, the Strait of Hormuz - a narrow waterway between Iran and Oman that connects the Persian Gulf to the Gulf of Oman and the Arabian Sea - remains effectively closed and LNG production in Qatar cut-off.
With a region ordinarily responsible for roughly 20% of global oil consumption and 20% of global liquefied natural gas (LNG) supply, it is causing extreme volatility in the oil markets1. On Monday 9th March, Brent crude touched nearly $120 per barrel before dropping down to below $90 as US President Trump offered some hope that the conflict could soon be over2. Prior to the war, oil was trading in a range of between $66 and $72 per barrel according to figures from Willis Towers Watson (WTW).
As sentiment rocks back-and-forth on uncertainties over how long the conflict may last, energy markets remain on tenterhooks.
While equity markets have also taken a beating as investors attempt to digest the risks posed by elevated oil prices on the global economy, for the moment they are holding up relatively well - most likely due to the cautious footing they were already on due to AI over-investment fears.
From here though, a range of possible market scenarios may play out.
A range of outcomes remain
Of course, it’s almost impossible to predict with any accuracy where the Iranian conflict may lead markets next, but the macroeconomic team at WTW have modelled some potential outcomes to help us visualise the risks. Core tenets include the duration of the conflict, the scale of damage to Gulf energy infrastructure, the impact on energy prices and the degree to which global inflation is affected.
The best of the outcomes sees military action end soon and the conflict resolved relatively quickly – more of a temporary geopolitical event rather than a big economic shock – with oil price rises pulling back as worries of a sustained supply disruption fade.
In a more modest scenario, the team pose that military operations continue for several weeks, keeping oil prices sustained at a higher level - somewhere between $90 - $110 range or even higher - stoking inflationary pressures. This potentially puts household incomes and corporate profit margins under pressure and foils central bank plans over interest rate cuts, encouraging investors to become more cautious.
The more feared scenario centres on a prolonged conflict that seriously impacts trade routes and inflicts longer-term damage on energy infrastructure. Oil prices potentially rise to well above current levels, triggering a sustained economic impact and causing markets to shift into a much more defensive ‘risk-off’ mode.
A view from Alliance Witan’s stock pickers
For a number of the Alliance Witan stock pickers, given the range of unpredictable outcomes and very top-down nature of recent events there is little change to their bottom-up long term investment theses, but they are keeping a keen eye on this fast-moving conflict and its impact at an individual company level.
Jennison, a global growth stock picker, remarks that their growth companies seem relatively insulated from the oil price volatility as evidenced in relatively flat recent portfolio performance, adding that any price weakness could be used to opportunistically top up positions.
They caution that longer term, if gas prices remain high and international travel continues to be affected, their positions in luxury and consumer goods may be impacted.
Sands, another Alliance Witan global growth stock picker, agree that the growth style has some advantages in this environment given that companies tend to have lower exposure to commodity prices and cycles, with capital-light, high margin business models that have meaningful pricing power offering some flexibility if prices change elsewhere in the economy.
They add that while some tech infrastructure is energy hungry, such as data centres and semiconductor fabrication plants, they typically own firms that sit in the higher value layer, with value driven by technological leadership, product differentiation and intellectual property (IP) rather than commodity inputs. Though not immune to energy price rises, they believe these companies are less sensitive than the benchmark.
They also outline that their portfolio is positioned differently how it was in the 2021/2022 period, with greater emphasis placed on companies with strong profits and balance sheets and durable competitive advantages, as opposed to those with a heavy reliance on distant or uncertain profits that are more sensitive to the macroeconomic environment.
Broadly, they believe there are plenty of opportunities in companies outside of the immediate beneficiaries of AI given recent concerns over potential long-term disruption to their business models.
Japan value stock picker Dalton adds their view on the Japanese market, remarking that while it has been susceptible to oil price shocks in the past, they believe it is low risk relative to other markets, with plenty of cash rich companies that can weather the storm. They also point out that the country is poised to become less oil energy reliant, with a stockpile of nuclear reactors poised to come online soon due to recent changes in policy.
They add that the portfolio has plenty of companies with pricing power and experience in passing on energy price movements to their customers, and that they will use any weakness to top up particularly high conviction positions.
Where we go from here
Stock picker Jennison finish by summarising that the trajectory of the conflict in the Middle East of course remains uncertain. If oil prices rise materially and remain elevated, they believe global markets will likely experience periods of volatility, with higher inflation, tighter financial conditions and slower economic growth affecting numerous industries and potentially influencing investor sentiment across equity markets.
But they also remind us that periods of geopolitical uncertainty often encourage investors to focus on near-term risks, and in doing so, cause them to overlook the long-term drivers of business value. They add it’s possible that today’s environment may represent one of those moments.
1 https://www.visualcapitalist.com/chart-energy-flows-at-risk-strait-of-hormuz/# (accessed 11 March 2026)
2 https://www.bbc.co.uk/news/articles/cx2jxe382pwo (accessed 11 March 2026)
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