Military strikes on Iranian nuclear facilities have triggered an immediate repricing of global financial markets, with oil prices soaring and investors reassessing inflation and interest rate expectations.
Nigel Green, CEO of deVere Group, warns the escalation marks a fundamental shift in market dynamics that will force rapid portfolio adjustments across asset classes.
“This conflict shatters the market’s base case scenario of easing inflation and forthcoming rate cuts,” Green said. Brent crude oil prices, which had risen steadily in recent weeks, now face potential spikes toward $130 per barrel if Iran disrupts shipping through the Strait of Hormuz. Such an increase would pressure central banks to maintain restrictive monetary policies, particularly the Federal Reserve, which markets had expected to begin cutting rates this year.
The energy shock comes at a delicate moment for global inflation. While price pressures have moderated from 2022 peaks, core inflation remains above target in most major economies. “Persistently high energy costs could reignite inflationary trends just as policymakers were gaining confidence,” Green noted. This development particularly threatens rate-sensitive sectors including technology and consumer discretionary stocks, while benefiting energy producers, defense contractors, and commodities.
Market reactions are unfolding across multiple fronts. Short-term government bonds and gold have seen safe-haven inflows, though the U.S. dollar’s trajectory remains uncertain given potential impacts on American economic growth. Sector rotations are accelerating, with analysts predicting sustained demand for energy and defense stocks alongside pressure on transportation and consumer-facing industries.
Historical comparisons to past Middle East conflicts provide limited guidance, as current conditions differ markedly. “Unlike previous regional crises, central banks lack policy flexibility with inflation still elevated,” Green observed. “Investors cannot assume quick rebounds like those seen during periods of monetary accommodation.”
DeVere advises clients to prioritize portfolio resilience through energy exposure, inflation-protected securities, and defensive equities while reducing positions vulnerable to prolonged volatility. As geopolitical risks escalate, markets face a new paradigm where geopolitical shocks may have more durable economic consequences than in recent decades.
