The Middle East – Opinions From the Manager’s Desk

Global Opportunities / International Opportunities Team

Markets are Positioned for a Short Conflict

Markets are currently pricing in a swift, contained outcome for the U.S.-Israeli war with Iran. Moves in oil futures, inflation expectations, and volatility indicators suggest investors expect a limited geopolitical event rather than a prolonged disruption. This leaves markets exposed if the conflict persists, energy prices could move materially higher, inflation expectations could rise further, and risk assets could reprice sharply.

Energy is the Central Risk

The key downside scenario is a broader conflict that disrupts global energy supplies. This could trigger a supply-driven inflation shock similar to past energy crises, with the greatest impact on large energy-importing economies. The result would likely be higher recession risk and significantly greater market volatility.

A New Era of Energy and Security Investment

Regardless of the near-term outcome, the longer-term direction is clearer. Geopolitical shocks are accelerating the push for greater energy independence, localised supply chains, and expanded military capability that began after 2022. In our view, this reinforces the structural case for sectors such as energy infrastructure and defence, while increasing the importance of managing cyclical exposure.

Global / International Select Team

The Market Overreacts to Headlines

Geopolitical events can trigger periods of heightened market volatility, particularly in the short term, although the longer-term economic and market effects can vary.

The “Iran collapse” Narrative is Unlikely

A breakup of the Iranian government remains highly unlikely. With a new Supreme Leader now in place, the most plausible change is an internal reshuffle rather than a fundamental change in the political system.

Gulf Stability is Being Underestimated

The GCC region remains one of the most resilient financial hubs globally, backed by strong institutions, deep reserves, and credible economic diversification strategies.

Global Emerging Markets Opportunities Team

A Short-Term Shock for the GCC, not a Structural Crisis

The GCC will face an immediate economic impact, shaped by the duration of the conflict and disruptions to shipping, travel, and tourism. Continued disruptions or closures of major transport hubs, including key airports and the Port of Jebel Ali, would weigh on economies heavily reliant on hydrocarbons and external trade. However, strong financial reserves and experience managing past crises suggest the region is well-positioned to absorb the disruption over time.

Supply Chain Disruptions Extend Beyond Energy

The most immediate global impact will be disruptions to energy and commodity supply chains. Lower oil and LNG flows will challenge energy-dependent economies across Emerging Asia, while shortages of exports such as aluminium, fertilisers, and refined products may ripple through global industries. Although logistics disruptions should ease as trade reroutes through alternative hubs, supply adjustments will take time.

Geopolitical Shocks are Increasing Investor Risk

The broader implication of the U.S.-Israeli war with Iran is a rise in macroeconomic and market risk. As seen after Russia’s invasion of Ukraine in 2022, supply shocks can drive inflation spikes and strain external balances in emerging markets, with poorer economies often most exposed (source: United Nations). For investors, geopolitical conflict raises downside risks across risk assets without improving the return outlook.

Emerging Markets Team

Short Term Pressure

The escalation of the U.S.-Israel war with Iran is weighing on emerging markets through GCC disruptions, a stronger dollar, and higher oil prices. Within the GCC, the UAE appears more vulnerable due to proximity, tourism reliance, a large expat population, and heavy foreign investor positioning, while Saudi Arabia is more resilient thanks to Red Sea access, a large domestic population and investor base, and lower foreign exposure.

End Game?

The longer-term impact will depend on the conflict’s outcome. A U.S.-Iran agreement on nuclear and missile programs could stabilise the GCC and lower risk premia, while deeper political change in Iran could unlock significant investment opportunities. If regime change proves unlikely, the U.S. could instead de-escalate by limiting military action in exchange for Iran halting attacks on GCC energy infrastructure and ensuring free passage through the Strait of Hormuz. This would help contain risks to global markets.

Volatility = Opportunity

Higher volatility brings both risks and opportunities. In the short term, supply chain disruptions may create opportunities in sectors such as petrochemicals, shipping, and refining. As tensions ease, recovery opportunities emerge, particularly as the current sell-off is also affecting energy-rich regions like Latin America that face no direct military threat.

Professional investors only.

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