Energy Routes Under Strain: Navigating Markets in a Time of Conflict
- Girish Appadu
- 1 day ago
- 3 min read
The escalation of hostilities between the United States, Israel, and Iran marks one of the most consequential geopolitical events for global markets in recent years. Coordinated strikes across Iran targeted political leadership, nuclear sites, missile infrastructure, energy assets, ports, and military bases. Within hours, Iran’s Supreme Leader and senior IRGC commanders were confirmed killed, leaving a temporary leadership structure in place and increasing the likelihood of a consolidation of hardline authority.
Iran responded with wide‑ranging missile and drone attacks across Israel and parts of the Gulf, disrupting airspace, halting airport operations in Dubai and Doha, and prompting precautionary shutdowns at selected energy facilities. Traffic through the Strait of Hormuz, the world’s most critical energy corridor, has slowed sharply, contributing to significant moves across oil, LNG and refined product markets.
As with previous geopolitical shocks, markets reacted by shifting into a risk‑off posture, with equities declining globally, energy prices rising, safe‑haven currencies strengthening and volatility indices moving higher.
1. The Nature of the Shock
This is a significant geopolitical event, but it does not, at present, represent a systemic threat to global economic stability. Several factors temper the risk of a prolonged economic impact:
Global energy supply is more diversified than in previous decades, and the US is largely energy self‑sufficient.
Spare pipeline capacity across the region allows for partial rerouting of supply should the Strait of Hormuz face disruption.
Corporate profitability, labour markets, and investment spending, particularly in AI, defence, infrastructure and industrial modernisation, remain supportive.
Central banks have become more comfortable “looking through” short‑lived energy‑driven inflation shocks.
Much will depend on the duration of energy disruptions and on the extent to which delivery of crude and LNG can be maintained or redirected.
2. The Strait of Hormuz: The Critical Variable
Roughly 20 million barrels per day of crude oil, and around 20% of global LNG trade
usually pass through the Strait of Hormuz. Even temporary disruption leads to:
higher war‑risk insurance and freight costs,
increased LNG spot market volatility (particularly impacting Asia),
refined product tightness, and
upward pressure on global inflation expectations.
According to industry assessments, up to 4.2 million barrels per day can be diverted via existing pipeline capacity. While not sufficient to fully offset a total closure, it mitigates the likelihood of a long‑lasting shock.
At this stage, the working assumption remains temporary disruption rather than lasting supply impairment.
3. Market Reaction: Consistent with Historical Precedents
Across geopolitical events spanning several decades, including the Gulf War, the US‑Iraq conflict, and the early phases of the Russia‑Ukraine crisis, markets have displayed a common pattern:
a sharp initial sell‑off,
an increase in volatility,
rises in energy and safe‑haven assets, and
a recovery once clarity returns.
Historical data indicates that global equity indices typically regain ground within months of such shocks, and frequently deliver positive 12‑month performance once uncertainty subsides.
Current market behaviour is consistent with these patterns.
4. Investment Considerations
Equities
While equity indices are experiencing heightened volatility, the underlying global economic environment remains broadly supportive. Technology, industrials, defence, infrastructure and selected Asia‑Pacific markets continue to show constructive medium‑term fundamentals.
Periods of geopolitical stress often present opportunities to add selectively to long‑term positions.
Commodities and Energy
Energy prices have risen materially, driven by both supply concerns and precautionary storage behaviour. While short‑term spikes are likely, history suggests such moves tend to retrace once supply routes normalise. Broader commodity markets, particularly metals linked to electrification and global infrastructure cycles, remain supported by structural demand.
Gold
Gold continues to act as a stabiliser within multi‑asset portfolios, benefiting from geopolitical premium, central bank demand, and diversification motives.
Fixed Income
Government bond yields have moved higher on the back of inflation expectations. High‑quality short‑duration bonds remain a useful tool for balancing risk and maintaining liquidity.
Currencies
Safe‑haven demand has supported the US dollar and Swiss franc. These effects typically reverse once geopolitical risk stabilises.
5. What We Are Monitoring
The following indicators will determine the scale and duration of market impact:
Continuity of crude and LNG flows through the Strait of Hormuz
The extent of damage to physical energy infrastructure
Iran’s capacity for sustained retaliation
Responses from global energy producers, including OPEC+
Inflation expectations and central bank communication
Shipping logistics, insurance markets and tanker traffic trends
Conclusion
The situation remains fluid and will likely continue to generate market volatility. However, the global economy today is more resilient, more diversified, and better equipped to absorb energy‑related shocks than in prior decades.
The base case remains that:
energy disruptions will prove temporary,
the global economic expansion will continue, and
markets will ultimately refocus on underlying fundamentals once clarity improves.
As ever, disciplined portfolio construction, diversification, and a long‑term mindset remain the most effective tools for navigating periods of geopolitical uncertainty.
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