Iran conflict: Keeping perspective on market risk

Tensions in the Middle East have caused some turbulence in global markets. Both shares and bonds¹ have experienced losses and oil prices have jumped. While this can feel unsettling, history suggests that these types of events don’t usually change long-term investment outcomes. 

Why markets are reacting

The main way these tensions are influencing markets is through oil prices. When there are concerns about potential disruptions to energy supplies, oil prices tend to rise. Higher oil prices can increase worries about inflation², affect expectations for interest rates and make investors more cautious in the short term. 

However, recent market movements don’t currently indicate expectations of a long-lasting impact on global economic growth.

Putting things into perspective

It’s natural to feel concerned about tensions in the Middle East. In the short term, uncertainty may remain high and oil prices could continue to move around. But markets usually stabilise once there is more clarity and when the most extreme fears don’t materialise. 

What history tells us

When both shares and bonds fall together it’s usually because investors are unsure about inflation and interest rates. But these periods tend to be temporary. Markets eventually adjust as inflation pressures ease and interest rate expectations become clearer. 

Geopolitical events rarely have a lasting impact on markets unless they cause: 

• a prolonged disruption to global energy supply

• a sharp rise in borrowing costs 

• a widespread economic downturn

If these do not occur, markets have typically recovered even when tensions continue. While markets don’t like uncertainty, history shows that while reactions to geopolitical events such as these vary, they are typically short lived.

What this means for investors 

1. Diversification still matters

Spreading your investments across different regions and industries helps soften the impact if one area underperforms and allows you to benefit when others are doing well. It won’t remove risk entirely, but it can help create a steadier investment experience. 

2. Discipline is essential 

Selling during market downturns can turn what might have been a temporary loss into a permanent one. While there’s no guarantee of how things will play out, history shows that investors who stay invested through the bumps can find themselves in a better spot when markets recover.

3. Market volatility can create opportunities 

Market ups and downs can sometimes present opportunities for investors who are adding new money or rebalancing their portfolios. When prices fall, it might be a chance to buy at lower levels, but it won’t be the right move for everyone. What makes sense depends on your circumstances and long-term plans.

The bottom line 

Periods when both shares and bonds struggle can feel particularly uncomfortable, but they are part of investing. While markets may remain choppy in the near term, long-term results are driven by fundamentals like economic growth and inflation. Investors who stay disciplined, keep their portfolios diversified and remain focused on their long-term goals have often found it easier to navigate periods of uncertainty and may be better positioned to benefit when conditions improve.

¹ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

² Inflation is the rise in prices for goods and services over time, meaning your money buys less than it used to.