Middle East conflict market commentary

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On 28 February 2026, US and Israeli military operations in Iran set in motion a new phase of geopolitical uncertainty. With events still unfolding, and markets responding in real time, the situation highlights the value of maintaining a diversified portfolio. It also underlines the need to ensure the level of risk clients and members are taking remains appropriate for their goals and investment timeframe.  

We’ll share further updates as we assess the impact on the underlying funds across our investment proposition.

The following information is correct as at 9th March 2026.
 

The short‑ to medium‑term market impact

Markets have adopted a risk‑off stance, with equities coming under pressure. Those in emerging markets appear particularly vulnerable due to their heightened sensitivity to geopolitical developments and commodity‑price moves. At the same time, demand for some traditionally defensive assets has strengthened as investors look to reduce overall portfolio risk. 

Oil and gas prices are likely to move higher on concerns about potential disruption in the Strait of Hormuz, raising the prospect of tighter energy supplies. Higher energy costs would, in turn, weigh on global growth while pushing inflation higher, adding further strain to an already fragile macroeconomic backdrop. 

The US dollar has strengthened following a weaker performance in 2025, during which the US Dollar Index (DXY) fell 9%, and has already risen nearly 1% this year. In contrast, emerging‑market currencies are coming under pressure as risk aversion intensifies and higher energy import costs weigh on external balances and investor sentiment.
 

Regional and sector implications

United States 

The US is less exposed to oil import price shocks thanks to abundant North American supply, which provides some insulation from energy market volatility. However, US equities are currently more richly valued, leaving them potentially more vulnerable to a larger multi-year drawdown if the global risk premium were to rise meaningfully.
 

Europe, Japan, and Asia ex‑Japan 

Europe, Japan, and Asia ex-Japan are likely to be more vulnerable given their significant reliance on imported energy, leaving them more exposed to the impact of higher oil and gas prices. As these cost pressures filter through, the regions are expected to experience greater inflation pass-through alongside more pronounced growth headwinds.
 

Sectors 

Defensive sectors such as defence, healthcare and utilities are expected to outperform. By contrast, sectors and regions reliant on imported oil are likely to face pressure, while commodity exporters stand to benefit from higher resource prices.
 

The longer-term outlook 

In the longer term we expect markets to settle back to typical values, provided the conflict does not become entrenched, though the range of potential outcomes is wide. On the downside, a prolonged period of regional instability would weigh on the global outlook. Conversely, an upside scenario could emerge if structural change in Iran leads to a more stable geopolitical environment. Should instability persist, geopolitical risk premia are likely to remain elevated, and returns in GBP, EUR and JPY could be constrained by ongoing inflation concerns. 

 

Information to help support your members and clients can be found in our Market Fluctuations and Your Pension Investments article.

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The information in this article should not be regarded as financial advice and is based on our understanding in March 2026. 

Money invested is at risk.