The shift from a “shadow war” to open conflict in early March 2026 has quickly altered the global economic outlook for the year.
What began on February 28 with targeted U.S. and Israeli strikes on Iranian security and nuclear infrastructure has escalated into a broader regional confrontation. For investors, the geopolitical risk premium has moved from an abstract concept to a key driver of market performance.
The immediate market reaction has been sharp. Asian equities, including the Nikkei and KOSPI, recorded some of their worst single-day declines in years.
But the real issue is not the equity volatility.
It’s energy.
And energy shocks rarely stay contained within the oil market.
Unlike previous Middle Eastern conflicts, the 2026 confrontation is characterised by direct attacks on energy infrastructure across the Gulf. This pushes the conflict beyond regional politics into something far more significant: a potential disruption to the global energy supply chain.
The implication is simple: This is no longer a regional geopolitical event.
It is a systemic shock to a global economy that was only just beginning to stabilise after years of inflation pressure.
One chokepoint, 20% of global oil
The most important developments for markets are happening at sea.
Iran has responded with what analysts describe as an asymmetric blockade of the Strait of Hormuz. A complete naval closure is difficult to maintain, but a de facto shutdown is already emerging.
Oil tankers are vulnerable targets. They are slow, enormous and highly flammable.
Following drone strikes near the ports of Duqm and Salalah, major shipping companies, including Maersk and Hapag-Lloyd, have suspended transits through the Strait.
Insurance premiums for “war risk” have surged, effectively forcing dozens of VLCCs (Very Large Crude Carriers) to anchor in the Gulf of Oman.
The result is significant.
Roughly 20% of the world’s daily oil supply and LNG exports pass through the Strait of Hormuz.
Even partial disruption has immediate global consequences.
Production has also been affected.
QatarEnergy has halted downstream production of urea, methanol and aluminium after strikes near Ras Laffan. Meanwhile, Iraq’s Rumaila oil field, operated by BP, has suspended operations due to security risks.
The simultaneous disruption of both transport routes and production has pushed Brent crude from around $70 to above $83 per barrel in just a few days.
Some analysts are already warning that $100 oil could arrive quickly if the conflict continues.
The inflation shock hiding inside the oil rally
Energy shocks are one of the fastest ways for geopolitics to spill into the real economy.
Heading into 2026, markets expected central banks to begin pivoting toward lower interest rates.
A major oil shock complicates that outlook.
Historically, a $10 increase in oil prices reduces global GDP growth by around 0.1–0.2% while adding roughly 0.3% to headline inflation.
Given the current trajectory, the war could subtract 0.8% from global growth if disruptions persist.
Europe is particularly vulnerable.
Gas storage levels were already lower than in 2025, and Dutch TTF gas futures have surged nearly 40%, raising the risk of another manufacturing slowdown in the Eurozone.
Winners and losers from the conflict
Geopolitical shocks tend to redistribute economic stress unevenly:
• The losers: China, India, South Korea and Japan are the most exposed, as they account for nearly 75% of the oil transiting the Strait of Hormuz. India’s oil marketing companies and China’s manufacturing sector are already facing margin pressure from higher input costs. Airlines and tourism are also under pressure as Gulf airspace closures force longer and more expensive flight routes.
• The winners: The United States is partially insulated due to its position as a net energy exporter. Higher oil prices benefit domestic producers in the Permian Basin. At the same time, defence contractors such as Lockheed Martin (LMT) and Raytheon (RTX) have seen their stocks surge as governments begin replenishing munitions inventories.
• Safe havens: The U.S. dollar has strengthened significantly against emerging market currencies, while gold has reclaimed its role as the traditional geopolitical hedge, trading near all-time highs as investors move away from risk assets.
Four ways investors can position portfolios during the oil shock
When geopolitical risk spikes this quickly, “buying the dip” can be dangerous. The more prudent approach is often a temporary rotation toward defensive exposures.
Possible considerations include:
1. Energy and commodities: Exposure to upstream oil and gas (for example, through the XLE ETF) remains a primary hedge. If Hormuz remains contested, the supply-demand deficit will persist regardless of OPEC+ intervention.
2. Gold and hard assets: Gold remains the traditional “war hedge”, but silver and copper may also benefit from the longer-term shift toward energy security and defence infrastructure.
3. Defensive sectors: Healthcare and utilities tend to outperform during periods of stagflation characterised by slower growth and rising inflation.
4. Treasuries and cash: While inflation erodes the long-term value of cash, elevated liquidity can allow investors to take advantage of forced selling during periods of market stress.
Protecting your capital when markets turn volatile
Periods of geopolitical tension often remind investors of a simple principle.
Capital preservation matters.
As Warren Buffett famously said: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
One way investors manage this risk is through structured investments designed to limit downside exposure.
These strategies allow investors to remain invested in markets for a defined period while incorporating built-in protection features. Depending on the structure, this may include conditional capital protection within predetermined barriers, enhanced income or fixed coupons even in sideways markets, diversified exposure to global indices or sectors, and clearly defined risk parameters from inception.
Not a subscriber to Money Morning?
You can get free daily recommendations like these with Money Morning eletter. Just sign up here.
