Early Market Reactions to Iran ConflictÂ
Over the weekend, the United States, alongside Israel, carried out significant military strikes against Iran, targeting key military and nuclear facilities. Iran has since launched retaliatory strikes across the region, and tensions remain elevated.
Despite the gravity of these events, financial markets have so far responded in a measured way. Oil prices initially jumped, with Brent crude rising more than 10% at one point as markets assessed the risk of disruption to global energy supplies. Gold prices also moved higher, reflecting a shift towards defensive assets.
As Asian markets opened on Monday, broader share market movements were relatively contained. In Australia, the ASX eased modestly from recent record highs. Most sectors traded slightly lower, while oil‑exposed companies and gold miners outperformed in line with commodity price movements. Importantly, market adjustments have been orderly.
For markets, the key issue to watch is whether this conflict leads to a sustained disruption to global oil supply.
The Strait of Hormuz remains a critical pressure point, with roughly one‑fifth of global oil supply and a similar share of global LNG trade passing through this narrow shipping corridor each day. A prolonged disruption could push energy prices higher and increase transport and production costs globally.
Oil prices are typically the main channel through which geopolitical events affect the broader economy. Short‑lived price increases are usually manageable. However, if higher energy prices persist, they can add to inflationary pressures and weigh on economic growth. In that scenario, central banks would need to factor higher energy costs into policy decisions, though it is still too early to determine whether this represents a lasting shift.
Geopolitical shocks are unsettling, but they are not unusual. History shows that markets often react sharply in the short term before stabilising as uncertainty becomes clearer.
From the Gulf War to 9/11 and the invasion of Ukraine, initial market declines have typically been followed by recovery once it became evident that the broader economic system remained intact. The long‑term impact on investment returns has generally been limited unless an event fundamentally altered economic conditions.
In the current environment, the main variable to monitor remains oil supply rather than daily headlines. Markets are forward‑looking and tend to focus on earnings, growth and liquidity over time. Unless these drivers are materially impaired, markets have historically demonstrated resilience.
First and foremost, we acknowledge the human cost and seriousness of conflict.
Periods like this can understandably make investors feel uneasy. A natural response to uncertainty is to become more defensive, but history suggests that decisions made in the heat of the moment rarely improve long‑term outcomes.
At Boyce, we do not adjust portfolios based on short‑term volatility alone. Our portfolios are built with diversification in mind, recognising that geopolitical events are an inevitable part of global investing.
We are monitoring developments closely, particularly around oil supply routes, inflation trends and broader market functioning. If the economic outlook changes in a meaningful way, we will respond thoughtfully and deliberately.
We’re here to support you through all market conditions. If you have any questions or would like to discuss your portfolio, please don’t hesitate to contact your Boyce Advisor.
Remaining disciplined through periods of uncertainty has historically been far more effective than reacting to short‑term noise.
