24 Jun 2025
If the last few months have shown us anything, it’s that geopolitics are playing a bigger role in financial markets than ever before. Whether it’s escalating tensions in the Middle East or the long-running fallout from the war in Ukraine, global events are having a real and immediate impact on markets - and by extension, on investment portfolios.
Let’s look at energy markets. When Russia invaded Ukraine, we saw oil prices shoot up more than 30% in just a couple of weeks, with Brent crude, the international oil benchmark, topping $130 a barrel and natural gas prices jumping 50% in a day. Global equity markets initially dropped by around 6% but they eventually began to recover. Fast forward to now with growing conflict in the Middle East and highly troubling dynamics at play. After Israel launched coordinated strikes on Iran, oil prices surged nearly 10% in a day and following recent US airstrikes targeting key Iranian nuclear facilities, the Iranian Parliament has approved a measure to close the Strait of Hormuz - action that could block $1 billion in oil shipments per day and is likely to send oil prices soaring.
The Strait of Hormuz - a narrow stretch of water off the coast of Iran - is a vital maritime corridor for global oil shipments with about a third of the world’s seaborne oil supplies flowing through each day. Iran has previously threatened to shut the Strait and although analysts believe it would struggle to completely block the waterway for an extended period, any threat to the smooth operation of this shipping route causes prices to destabilise and spike. The final decision rests with Iran’s Supreme National Security Council but the vote clearly shows intent to weaponise one of the world’s most economically sensitive maritime chokepoints. Markets are on the edge, poised for potential fallout, as the world braces itself for what’s to come. If the channel closes, the consequences will be swift, severe, and far reaching.
What could tension in the Middle East mean for future inflation? The Bank of England recently held interest rates at 4.25%, partly due to concerns about the potential impact of geopolitical conflict. With inflation still proving sticky around the world, it’s not surprising that policymakers are carefully calibrating their actions, mindful of the fine line they must walk.
What does this mean for portfolios? Having a mix of assets can make all the difference when markets react to sudden events and news flow - diversification helps smooth out the bumps and provides space to rebalance when opportunities arise.
Assets like gold and energy-related investments have once again shown their value. Gold climbed sharply, peaking on June 13th, then eased over the following week, but remains elevated compared to pre-spike levels. In turbulent times, investors often look to gold for safety, and oil and gas companies tend to benefit from higher prices. Infrastructure assets also seem to hold up well when geopolitical tensions flare, offering inflation-linked income and lower correlation to traditional equity markets.
Companies with strong balance sheets, global revenues, and the ability to hold pricing power are more resilient during periods of stress. They might not be the fastest growers, but they offer some much-needed stability when there’s an uptick in volatility. On the bond side, keeping things short and sweet is the name of the game right now. Short-dated bonds are offering solid yields with relatively low risk, making them a great option for preserving capital while still generating income. Given all the uncertainty around inflation and interest rates, it makes sense to avoid too much duration risk for the time being.
Liquidity is another key consideration. Having some cash or highly liquid assets in a portfolio gives clients the flexibility to take advantage of new opportunities or respond to mercurial markets. When things move quickly, having the option to pivot quickly can make all the difference.
And what about emerging markets? They’re a mixed bag in this environment. Historically, they don’t tend to fare well during geopolitical uncertainty but there are exceptions. Countries like Brazil that benefit from higher commodity prices, or OPEC-aligned exporters could present interesting opportunities. The key is to be selective and understand the underlying exposure before making a move.
None of us can predict what will happen next but we can help clients build portfolios that are ready for a world where global politics play a bigger role in market outcomes. That means staying diversified, leaning into real assets, focusing on quality, and keeping portfolios nimble. It’s not about trying to predict or time crises - it’s about being ready for whatever’s coming next.
Robin Ghosh, Senior Investment & Research Manager
Katie Sykes, Client Engagement & Marketing Manager
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