Our views
Despite the death of Supreme Leader Ali Khamenei, the events unfolding in Iran is not a regime shift like Venezuela, or even a broader dismantling of the country’s command structure, given that governance in Iran is institutionalised. We continue to monitor events to help map out what lies ahead for markets.
Oil prices surge as supply disruption intensifies
10 March 2026
Oil prices have risen sharply as disruption from the Iran conflict begins to constrain supply and restrict the flow of crude to global markets. What began as a geopolitical shock is now feeding more clearly into energy pricing. We examine what is driving the latest moves and consider the implications for energy companies and the broader market.
Key takeaways
- Oil is now reacting to physical supply disruption, not just geopolitical risk, as constrained exports and reduced production tighten the market.
- This is extending beyond the near-term, signalling that markets are reassessing the likely duration of disruption and the time needed to rebuild inventories.
- Energy stocks have lagged spot prices, but sustained strength further along the curve could start to influence earnings expectations.
Oil markets have entered a more acute phase of repricing as the conflict in the Gulf intensifies and physical disruption becomes more visible. The Strait of Hormuz remains effectively closed, production has been curtailed across parts of the Middle East, and several refining and LNG facilities have been disrupted. The result is a sharp tightening at the front of the crude curve and the first meaningful reaction further along it.
Brent one month forward reached above US$118 per barrel on Monday 9 March, up from US$93 at Friday’s close and US$72.5 at the end of February. This marks a decisive move beyond a geopolitical risk premium into what is increasingly a physical supply shock.
The shape of the oil curve is instructive. Until recently, the moves had been limited to the short end, which reflects immediate supply and demand conditions. This implied expectations of a temporary disruption, but that pricing dynamic has now begun to shift with longer-dated contracts seeing price increases. Brent forwards for delivery in six months have risen from US$75 on Friday to over US$85 on Monday, while the 12-month forward has increased from US$71 to over US$75. By contrast, the long end beyond two years remains anchored in the high 60s.
This divergence reflects three forces. Firstly, the spot market is tightening quickly as export routes remain blocked, and storage fills across producing countries. Secondly, investors are reassessing the likely duration of the disruption, pricing in higher probability of a sustained conflict. Finally, temporary reductions in production mean inventories are likely to be drawn down, with a realisation that those stock levels would take time to rebuild even if flows begin to normalise.
Physical disruption broadens
The US has offered to escort vessels through the Strait of Hormuz and potentially provide a sovereign-backstop to insurance contracts, but the market has not yet believed these to be credible near-term solutions.
With currently no way of transporting the crude out of the Gulf, local crude storage sites are reaching capacity, and producers are having to temporarily halt production at upstream fields. Iraq has now taken approximately 1.5 million barrels per day offline mostly at the Rumaila and West Qurna II fields.
The UAE has also begun cutting production, although the scale is unclear. Kuwait has declared force majeure on exports and reduced output. Saudi Arabia is running output below its stated capacity, and although it has some ability to redirect some volume to the Yanbu port on its Red Sea West Coast, recent loading data suggest such volumes remain modest relative to potential capacity. Should the Strait remain closed for a prolonged period, further production adjustments across the region are likely.
The disruption extends beyond crude. Qatar’s Ras Laffan LNG facility, representing around 10 billion cubic feet per day, is offline. Israeli offshore gas fields have declared force majeure. Given LNG’s more concentrated production base and more limited rerouting options, spot gas prices have reacted more aggressively than oil. Even in the event of reopening, LNG facilities can take weeks to restart and return to full utilisation.
Refining capacity has also been hit. Saudi Arabia’s Ras Tanura refinery is offline. Major Kuwaiti facilities are operating at reduced throughput. Refineries in Bahrain and Iran have sustained damage, while Chinese refiners have reportedly cut runs and halted exports. Reduced refining activity lowers crude processing in the near term but tightens the supply of refined fuels. As a result, diesel and jet fuel prices are rising faster than crude, increasing refining margins.
Market implications
The market now faces a classic supply shock dynamic. If the Strait remains closed and production cuts persist, near term prices are likely to remain under upward pressure. Ongoing inventory draws would also lend support further into the curve. Even with rapid de-escalation, however, rebuilding inventories and restoring trade flows would take time.
The long-dated portion of the curve remains relatively anchored, suggesting investors still view this as a severe but temporary disruption rather than a structural reset of global supply.
Duration is therefore the critical variable. A credible reopening of the Strait, particularly if accompanied by sovereign insurance support, could trigger a swift pullback in near term prices as risk premia unwind.
Physical supply would recover more gradually. While production in countries such as Saudi Arabia and the UAE can be restored within weeks, inventories and logistics would take longer to fully normalise. By contrast, a prolonged closure would embed a higher risk premium across both near and medium-term pricing.
How energy stocks are responding
Energy equities have so far lagged the move in spot crude, which is consistent with standard valuation mechanics. In theory, equity valuations should anchor to the long-dated portion of the commodity curve, with only a modest multiple applied to supernormal near-term earnings. The long end remains in the high 60s, which explains the more measured equity response to date.
However, as the six and 12-month contracts move higher, cash flow expectations for 2026 are also rising. That may begin to feed through more meaningfully into equity pricing if sustained.
Companies with stronger balance sheets, diversified operations and exposure to international pricing benchmarks may be relatively well placed if elevated prices persist.
At this stage, positioning should remain disciplined. The oil market has moved from pricing risk to pricing disruption. Whether it transitions further into a sustained supply regime shift will depend almost entirely on the duration of the Strait closure and the evolution of the conflict.
Macro - Strait of Hormuz: The macroeconomic implication
Salman Ahmed, Global Head of Macro and Strategic Asset Allocation
10 March 2026
Conflict in the Middle East has effectively closed the Strait of Hormuz, with significant implications for the oil price, inflation and economic growth. Against this backdrop, Salman Ahmed, Global Head of Macro and Strategic Asset Allocation, considers the macroeconomic implications of the ongoing geopolitical instability.
Key takeaways
- Amid ongoing conflict, it is increasingly likely that we will see a prolonged closing of the Strait of Hormuz, with significant implications for the oil price.
- Sustained uncertainty would lead to higher headline inflation and dampened growth, especially for import-dependent regions. Europe and Asia could see larger shocks, while the US is relatively more insulated.
- It is important to note that this situation is not a replay of the post-pandemic energy shock period of 2022. This is currently a supply-side disruption, rather than a recalibration of global energy relationships.
Last week, we noted that investors’ belief that the Trump Administration will find an off-ramp very soon was likely an oversimplification. That framing underestimated both the scale of Iran’s aggressive response and its demonstrated capacity to sustain retaliation for an extended period of time.
Tehran retains the ability to run decentralised, drone-centric warfare at a relatively low cost while continuing to impose asymmetric pressure across the region. Crucially, it also has a credible ability to keep the Strait of Hormuz effectively closed for an extended period (weeks, if not permanently). With shipping flows severely curtailed and insurers withdrawing cover, this is no longer a headline risk but a clear physical constraint.
Strait of Hormuz: In ‘Scenario 3’ territory
The oil price has now gone into convex moves territory with significant volatility, in order to generate instant demand destruction and cover the big supply gap that has opened up. As such, we now seem to be working in the ‘Scenario 3’ territory mentioned in our previous update, with a sharply rising probability that the Strait is shut/disrupted for a prolonged period.
However, this is no longer a tail risk scenario. The Strait of Hormuz being effectively closed for more than a week means that the mechanism has already shifted from fear to constraint, and the release of strategic oil reserves will be required (which will be important for intra-day market action). Iran does not need a classic naval blockade to achieve effective closure. The combination of drones, missiles, threats, and uncertain attribution can be enough to deter insurers and operators - and freeze traffic.
Geopolitical logic: Tehran appears focused on continuing to ‘deliver cost’ while projecting continuity and resolve via leadership signalling. The appointment of Mojtaba Khamenei is being read externally as a hardline consolidation move under wartime pressure, reducing the odds of a quick compromise.
US posture: Official US communications emphasise ongoing strikes and continued pursuit of Iranian missile capabilities, while broader commentary has left room for shifting end-states. This keeps Iranian incentives tilted toward demonstrating endurance and leverage, rather than negotiating quickly.
‘Day-after’ framing: Even if the kinetic phase moderates, the Strait of Hormuz may remain contested. This would be enough to sustain a premium because the market cannot rely on smooth scheduling, safe passage, or stable insurance.
Physical market duration: Disruptions can run into months because cargoes are deferred, rerouted, or cancelled; shipping capacity is trapped in suboptimal rotations; and buyers rebuild inventories while diversifying supply.
Oil price implications: This is predominantly a choke-point shock turning into a production shock, as storage fills up and shut-ins take place (limited strikes on Gulf infrastructure adds to the physical disruption). The most acute pain sits with Europe and Asia, due to their exposure to seaborne crude and replacement barrel competition. The US is more insulated than in prior decades because it is a major exporter. It can lean on domestic supply flexibility and policy levers to limit the pass-through into the price of WTI relative to Brent, even if it cannot fully escape refined product and regional dislocation effects. China is comparatively less exposed in the near term as inventories are high, but it is not immune if disruption persists and replacement barrels reprice the whole seaborne system. Indeed, proactive policy action is already visible in China with export bans on refinery output.
In addition to oil, the Strait of Hormuz is also shut for liquefied natural gas cargoes from Qatar, where again Europe and Asia are directly exposed to the disruption.
Macro transmission: Impacting inflation and growth at the same time
This is the uncomfortable stagflationary mix. A sustained disruption of the Strait does not only mean higher headline inflation via energy prices. It also hits growth via real income compression, tighter financial conditions and margin pressure - especially for import-dependent regions suffering a negative terms-of-trade shock (where import prices suddenly rise faster than export prices).
Europe and Asia could see a larger negative terms-of-trade shock, and larger industrial costs shock. There is a risk of weaker growth alongside stickier inflation rises, while foreign exchange/FX channels will likely make the inflation shock worse, especially for Asia.
The US is more immune than in past Gulf shocks, but not completely immune. The main macroeconomic difference is that the US is less likely to face an unbounded domestic crude shortage. The shock is more external, via global pricing, products, and risk assets, rather than purely domestic energy scarcity.
For China, there is near-term cushioning if inventories are ample. However, a multi-month disruption would force competition for Atlantic basin barrels and could still re-tighten global balances as inventories fall.
Rates and cross-asset: Bonds not a buffer, but this is not 2022
As we have highlighted previously, bonds may not be a great hedge here because the shock has a direct inflation impulse and can keep front-end pricing sticky even as growth deteriorates. This is still not a replay of 2022, because the macro backdrop and starting point differ - coupled with the fact that this is a disruption, not a recalibration of entire energy relationships (like we saw between Europe and Russia). The global economy is not necessarily entering from the same inflation-acceleration regime and policy reaction function as it was in the post-pandemic energy shock period, and willingness of central banks to tolerate inflation is visibly higher (especially in the US).
Put simply, the market can simultaneously fear stagflation dynamics without assuming the exact same central bank path or the same depth of real rate repricing that defined 2022. Central banks will also be careful not to sound too hawkish on what is essentially a disruption and a pure supply-side shock, until the more permanent effects on energy pricing become clearer (which will take time).
Overall, ‘Scenario 3’ now carries a materially higher probability. The Strait of Hormuz chokepoint being effectively shut is now leading to production knock-on effects, and there are no visible off-ramps in the political messaging currently. Iran appears committed to sustaining cost imposition and projecting continuity, while the US narrative remains flexible enough to keep end-states ambiguous with strikes on Iran continuing unabated for now.
The ‘day after’ is therefore not a clean revert. Oil is likely to carry a durable premium while the Strait remains contested, physical disruptions persist for months, and the macro shock is transmitted through both inflation and growth - with Europe and Asia taking the heavier hit and the US relatively more insulated.
Webinar replay: From headline risk to a priced geopolitical event
5 March 2026
Global markets have entered a period of heightened volatility following the latest escalation of tensions involving Iran, as energy prices and risk assets adjust to the prospect of a more sustained geopolitical conflict. Against this backdrop, our senior investment team assess the evolving macro risks, outline potential scenarios and discuss how portfolios are positioned to navigate near-term uncertainty while remaining focused on longer-term fundamentals.
Key points
- Our base case is an elevated geopolitical risk premium in oil rather than a structural breakdown in global energy supply.
- Cross asset implications are differentiated, with the US relatively insulated as an energy exporter, while Europe and parts of Asia are more exposed to prolonged disruption.
- Portfolio positioning remains anchored in medium-term fundamentals, with diversification, duration discipline and selectivity in credit and equities central to navigating volatility.
Salman Ahmed, Global Head of Macro and Strategic Asset Allocation
Markets have moved quickly from reacting to headlines to pricing a more sustained geopolitical event. What initially appeared consistent with past episodic Middle East flare ups has evolved into a more complex phase of escalation.
Energy remains the central transmission channel. The issue is not only production but transit. Around one fifth of global oil and refined product flows pass through the Strait of Hormuz. While it has not been formally mined or blocked, traffic has slowed materially, embedding a geopolitical premium into oil, most visibly into Brent.
Within the scenario framework outlined, markets have shifted from assuming a contained exchange to pricing a more sustained escalation, while full disruption of the Strait remains a tail risk. Duration is the key macro variable. Oil would need to remain at elevated levels for three to four months to materially affect inflation and growth. A temporary spike is manageable. A sustained period of higher prices would feed through inventories, margins and purchasing power, tightening financial conditions more meaningfully.
Unlike 2022, which marked a structural recalibration of Europe’s energy relationships, the current episode is better characterised as a disruption. Trade flows are likely to resume once tensions subside.
Political constraints also matter. The US is an energy exporter and retains tools to manage domestic price pressures. In an election year, gasoline prices are sensitive, and equity markets act as an additional constraint. For now, those thresholds have not been breached.
Equities: valuation, earnings and energy transmission
Niamh Brodie-Machura, Chief Investment Officer, Equities
Equities entered 2026 with multiples above long-term averages, particularly in the US, supported by expectations of robust earnings growth and AI-driven investment.
Geopolitical escalation requires reassessment of the appropriate risk premium. However, short lived geopolitical shocks tend to increase volatility and dispersion rather than permanently impair equity markets.
The key question is duration, particularly given the transmission channel from energy prices into inflation and interest rates. A prolonged rise in oil and gas prices would compress margins in energy intensive sectors and erode purchasing power. The regional impact is asymmetric. The US, as an energy exporter, is relatively insulated. Europe and much of Asia are net importers.
Sector effects are emerging. Airlines face higher fuel costs and disruption at key Middle Eastern transit hubs, while shipping markets are seeing firmer freight rates. Industrial companies warrant close attention given their exposure to input cost pressures.
The AI investment cycle remains a swing factor. Large technology companies are not indifferent to energy costs, particularly where gas and electricity prices influence data centre competitiveness.
In the absence of prolonged energy disruption, earnings growth is likely to remain the primary driver of returns. Diversification across regions and sectors remains central.
Portfolio positioning in a resilient but more volatile backdrop.
Matthew Quaife, Global Head of Multi Asset
The conflict has occurred against a backdrop of resilient global growth and ongoing investment momentum, particularly in the US. AI led capital expenditure continues to underpin nominal growth.
Markets entered this episode with constructive sentiment and extended exposures, contributing to sharper short-term adjustments.
Within multi asset portfolios, the approach has been to stay invested given resilient fundamentals, while looking to add selectively to areas that have been sold off due to positioning.
Safe havens have not behaved uniformly. Gold, where positioning had been strong, has softened in recent days but remains an important defensive allocation, and is being added to selectively. The US dollar has strengthened in line with risk aversion, though this may partly reflect prior positioning. Treasury markets have been volatile, prompting a broader search for diversified sources of defensiveness.
Regional differentiation remains central. The US benefits from relative energy independence and robust nominal growth. Europe appears more exposed in a prolonged energy shock. Japan, which has corrected sharply, retains constructive medium-term drivers.
Fixed income and Asia: duration discipline and selective opportunity.
Lei Zhu, Head of Asian Fixed Income
Oil remains central to fixed income positioning. Across most developed markets, duration exposure is neutral to underweight given the risk that sustained higher oil prices could reprice inflation expectations. Short-dated investment grade credit is favoured as a defensive allocation.
Asia presents a differentiated picture. Regional currencies have retraced some gains, though higher quality currencies have behaved relatively defensively. China stands apart. With inflation subdued and CPI at 0.2%, there is scope for policy easing. Chinese government bonds have behaved as a safe haven and duration is overweight relative to other markets.
Credit spreads in Asia have widened in an orderly fashion. Investment grade spreads have moved modestly, while high yield has seen contained widening. With a structural shortage of strong credits in the region, more meaningful spread widening would likely attract demand from investors seeking diversified income opportunities.
Currency pressures in emerging markets also warrant attention. If central banks are forced to draw down foreign exchange reserves to stabilise exchange rates, this could feed back into global bond markets. That said, the emerging market universe is far from uniform, with energy exporters benefiting from higher prices while importers face greater pressure.
Key variables to monitor
The path of oil prices remains the clearest indicator of market assessment. Brent is bearing the geopolitical premium, while US crude prices remain relatively better anchored given domestic supply flexibility.
Political signalling, particularly in the US, is also critical given domestic sensitivity to energy prices.
For now, markets are pricing a prolonged risk premium rather than a systemic supply shock. The duration of elevated oil prices and developments around the Strait of Hormuz will determine whether the macro impact remains contained.
Portfolios should remain diversified and selective, anchored in medium-term fundamentals while retaining flexibility should elevated oil prices persist.
Fixed Income
2 March 2026
Marion Le Morhedec, Chief Investment Officer, Fixed Income
Markets are likely to experience short-term volatility due to heightened geopolitical tensions and a disrupted outlook for oil prices and inflation. A typical flight to quality reaction may still support AAA-rated sovereigns — such as US Treasuries, Bunds, and highly rated issuers — although recent geopolitical realignments mean global investors have been gradually reducing their reliance on US Treasuries as the dominant safe haven asset. This evolving pattern reflects both geopolitical diversification and an increased willingness to rotate into high-quality sovereigns outside the US. Inflation breakevens could be repricing higher inflation expectations across geographies if the conflict were expected to last significantly.
Asia is increasingly perceived as a relative safe haven, with Hong Kong and Singapore positioned to benefit from a potential relocation of capital and talent from the Middle East. High-quality Asian currencies may also stabilise and recover after the initial market shock. Wider spreads should create selective buying opportunities, particularly in high-quality credit.
The primary regional risk is a sharp rise in oil prices, especially if disruptions occur in the Strait of Hormuz. Major Asian economies — India, China, Japan, and South Korea — are highly dependent on oil from the Middle East and may need to draw down strategic reserves. A prolonged disruption would significantly raise inflation and cost pressures. Such inflationary effects could negatively impact inflation-linked bonds, broader rates markets, and credit segments sensitive to macro conditions.
Historically, geopolitical risk premia in Gulf Cooperation Council (GCC) markets tend to reemerge during periods of tension, affecting oil sensitive credits. However, GCC national champion banks and Israeli banks generally remain fundamentally strong; valuations will depend on how markets price macro risk.
Israeli banks are experiencing a more contained situation compared with the 2023 Gaza conflict. They have demonstrated resilience, returning to markets earlier this year with improved asset quality and strong capitalisation. Their credit cycles and cost of risk trends remain consistent with Bank of Israel stress tests. Rating downgrade risks have eased, though Israel’s sovereign rating retains a negative outlook from Fitch.
Middle Eastern banks in the UAE, Qatar, Saudi Arabia, and Kuwait face risks through weaker business sentiment, trade disruptions, and hydrocarbon export challenges. Higher oil prices support sovereign finances, but a blockage of the Strait of Hormuz could sharply reduce exports for Kuwait and Qatar, while the UAE and Saudi Arabia can reroute most flows through alternative pipelines. Nonetheless, strong sovereign wealth buffers, improved underwriting, diversified loan books, and a robust history of state support should help banks absorb shocks.
Multi Asset
2 March 2026
Matthew Quaife, Global Head of Multi Asset Investment Management
While geopolitical developments remain difficult to forecast with precision, portfolios should be positioned to withstand a range of potential outcomes. Alongside the conflict, several macro fault lines remain in play. The path of US fiscal policy is critical given debt and issuance dynamics, while the US Federal Reserve’s reaction function is facing greater political scrutiny. The durability of AI-led investment is another key swing factor — both in sustaining US nominal growth and in determining how far productivity gains and disruption extend beyond the technology sector.
At a broader level, growth across major regions remains intact, with particularly strong nominal momentum in the US supported by fiscal expansion and AI-driven capital expenditure. The global cycle is still in expansion, but dispersion is increasing as geopolitical fragmentation and strategic trade tensions reshape trade and capital flows. We remain constructive on equities over the medium term, supported by resilient earnings and policy backing, while recognising that near-term volatility may rise. Gold remains a valuable portfolio diversifier in a world of rising geopolitical fragmentation, ongoing fiscal expansion and more fragile bond–equity correlations, with its role as a structural hedge against policy and confidence shocks firmly preserved. Consistent with our approach, periods of dislocation would be viewed as opportunities to add risk selectively rather than a signal to structurally retrench.
China macro and market implications
2 March 2026
Peiqian Liu, Asia Economist
China's economy should continue to prove resilient against conflict in the Middle East, so long as the situation remains contained.
The conflict in Iran has raised questions around potential spillover into China’s economy and financial markets. While headline risk is elevated, direct macroeconomic transmission remains manageable in the very near term under a base-case scenario of contained conflict.
We see three primary channels through which developments could affect China:
1. Risk sentiment and capital flows
Market reaction in the immediate aftermath has been more measured than many anticipated. Equity volatility has remained contained and cross-border capital flows have not shown signs of systemic stress.
China’s relatively closed capital account and policy flexibility provide a degree of insulation. That said, a prolonged conflict could weigh on regional risk appetite and temporarily tighten financial conditions.
Base case: Risk sentiment remains stable unless escalation broadens geographically.
2. Inflation and energy pass-through
Sustained higher oil prices would lift producer prices (PPI) first, particularly for raw material prices. Margin pressure would likely emerge in mid- and downstream industries.
However, China has started its “anti-involution” policies to consolidate some sectors to improve corporate profitability at macro level. We expect these policies to be implemented more diligently as a buffer under the scenario of input price shock.
Meanwhile, the transmission into consumer prices (CPI) will likely be milder, as the weight of the energy component has been reduced in the latest rebase of the CPI basket, and energy prices will likely be closely regulated in domestic retail markets. The People’s Bank of China’s policy reaction function will unlikely see significant changes if inflation remains under control.
Base case: PPI sees temporary upward pressure; CPI impact remains contained.
3. Trade and current account exposure
China imports roughly 20 per cent of its total energy consumption, and oil remains a key input for industrial production. The strategic reserves provide a short-term buffer, but it will be incrementally more vulnerable if the conflict is sustained and leads to wider disruptions in both oil supply and the shipping routes through the Strait of Hormuz. Direct impact from closure of the Strait of Hormuz would cause disruptions to around 45 per cent of China’s crude oil imports. The direct oil imports from Iran take up around 13 per cent to 14 per cent of China’s total imports.
Base case: Limited disruption; tail risk lies in shipping corridor escalation.
Policy and politics
China’s diplomatic posture has so far remained measured, emphasising restraint and de-escalation. With US President Donald Trump scheduled to visit Beijing from 31 March to 2 April, both the US and China appear intent on maintaining a conciliatory tone and avoiding further escalation in bilateral trade or geopolitical tensions. Following the IEEPA tariff policy ruling, the United States Trade Representative has been cautious about reinstating alternative tariff measures - such as renewed Section 301 actions on China - while awaiting the outcomes of the upcoming leaders’ meeting. Similarly, we expect overall stability to prevail regarding the broader implications of the Middle East conflict, though the situation remains fluid and warrants continued caution.
Separately, China’s Two Sessions will commence on 5 March. We do not anticipate changes to key socio‑economic targets as a result of recent Middle East developments; however, markets will closely monitor commentary from ministerial interviews and press conferences. On this year’s growth outlook, we believe there is scope for flexibility in the real GDP target, while other core indicators - employment, inflation, and the budget deficit - are likely to remain largely unchanged to signal stability and continuity in China’s policy approach.
Bottom line
While geopolitical risk has increased, China’s macro fundamentals and policy toolkit provide resilience against immediate shock transmission. Our base case remains one of contained macro impact, with vigilance warranted around energy markets and global trade routes.
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