Whilst the world has had a weekend to absorb and react to the news of the US-Israel strikes on Iran, today is the first opportunity for financial markets to respond. So far, all is relatively calm, with just moderate weakness being seen in global stockmarkets and some strength being seen in the US dollar. Oil prices are elevated, but currently well below the 10% or more spike some commentators had feared.

To some extent, energy markets had already been bracing themselves for a testing time ahead, with the recent military mobilisation by the US having already caused energy prices to rise sharply in recent weeks, hence today’s moves are more measured. This is despite the effective ‘closure’ of the Strait of Hormuz, the vital artery for global energy flows which accounts for around a quarter of global seaborne oil shipments and around a fifth of liquefied natural gas flows, most of which is destined for Asian economies. It is helpful that OPEC+ has responded quickly to raise oil output, which seems to be aiding the relative calmness today in financial markets.

It is, of course, very early days to know how this conflict will unfold from here. Much depends on whether a more conciliatory path can be found, particularly after the formation of a new interim leadership council in Iran.

…it typically pays to sit tight at times of heightened geopolitical uncertainty…

As we saw with what turned out to be a very brief conflict in the region last year, it typically pays to sit tight at times of heightened geopolitical uncertainty unless there is a very clear and more permanent change in fundamentals. Until we have greater clarity, riding out what is likely to be a more elevated period of volatility for risk assets should prove to be the better strategy in the longer term than making knee-jerk changes.

It is worth noting that only if the oil price and other critical energy prices were to be sustained at a much higher level – perhaps more than $100 a barrel in the case of oil – would it have a meaningful impact on inflation, global growth and central bank policy. That scenario might require some adjustments to our positioning as it may have longer term implications for how key asset class such as equities and bonds behave.

…we see no immediate need to make changes.

But as things currently stand we see no immediate need to make changes. It is worth noting that for lower risk and more diversified investment mandates, our allocations to alternative investment have a useful role to play in such times of heightened market uncertainty. Furthermore, many of our active managers have the necessary tools to make day-to-day tactical shifts in strategy to navigate through tricker market conditions. We too are monitoring this unfolding situation closely and your usual contacts are available should you have any questions or immediate concerns.