Where we are...

• The U.S. and Israel launched a series of airstrikes on Iran on February 28. The objective of these strikes is to take out Iranian leadership, nuclear sites, ballistic missile facilities, as well as other military infrastructure. By removing political leadership, Washington is pursuing regime change in Tehran, although there are no clear candidates to take over.
• It was confirmed that Iran’s supreme leader, Ayatollah Ali Khamenei, was killed in the strikes, along with a number of senior Iranian officials. The Iranian government formed a transitional council to handle state duties.
• Iran has launched a number of retaliatory strikes against neighboring countries with U.S. military installations, including the UAE, Kuwait, Saudi Arabia, Bahrain, and Qatar, leading to disruptions in air traffic.

The potential impact on the global economy?

• In recent years, we have stressed that Iran itself does not move the dial in global energy supply in a meaningful way. It accounts for about 3% of global production, mainly exported to China, and there should be enough spare capacity to cover the shortfall in case Iran’s output is constrained. However, it does have military influence over the Strait of Hormuz, through which around 20% of global oil and refined products travel to importers around the world, especially in Asia.
• Iran has avoided blocking the strait in recent conflict for an important reason: much of its oil exports also go through this channel. Shutting down this choke point could cut off an important source of revenue. It also wants to maintain a cordial relationship with other Gulf nations. However, the Iranian Revolutionary Guard has warned ships that they will not be allowed to past. It was also reported that insurers have cancelled policies and raised premium for ships in the Gulf. Hence, some shipping routes have already been suspended, at least temporarily.
• The potential impact on global energy prices would depend on the duration of the military conflict and the extent of disruptions to global energy supply. Another risk is whether Iran would target energy production infrastructure in the region.
• Each military conflict and its impact on energy prices are different. For example, at the onset of the Russia–Ukraine war, Brent crude rose from USD 98/bbl to USD 128/bbl—a 31% increase—in less than a month. For reference, Russian oil production as a share of global output was 12% in 2022. In June 2025, in the buildup of U.S. bombing Iranian nuclear sites, Brent rose from USD 64/bbl in early June to USD 79/bbl. This quickly reversed as Iran was more measured in terms of retaliation and there was no clear threat to the Strait of Hormuz.
• In the short term, the energy market could price in a higher risk premium given the uncertainty. This could also translate into higher food prices, given the strong correlation between food and energy prices, as fossil fuels are used as raw materials for fertilizer and directly drive transportation costs.
• On Sunday, OPEC+ has pledged to raise output by 200,000 barrels per day. However, investors are arguably less concerned about the overall production, but rather the logistics of oil delivery in case there are blockage in the strait.
• If the energy supply disruption is sustained, this could imply a supply shock to global inflation. For developed-economy central banks, this is a challenge, since rising fuel and food prices cannot be effectively addressed by higher rates. It has long been argued that the drop in disposable income could actually risk weaker consumption. For selected emerging markets—especially those with current account deficits and that are net importers of oil—central banks may have few choices but to raise rates to maintain currency stability. Historically, India and Indonesia have been more vulnerable in this environment.
• In terms of economic growth, Japan, South Korea, Taiwan, and India are highly dependent on imported crude oil to support economic activity. South Korea and Japan have over 6 months of reserve, while Taiwan has 3-5 months. While they do not import from Iran, an extended blockage of the Strait of Hormuz could be very disruptive to their energy supply. China’s reserve is around 1-2 months and being the largest importer of Iranian oil could force them to switch supply. 

Finally… on markets

• Assets that could be used to hedge immediately against the latest developments include equities in energy—especially upstream exploration and extraction—and defense companies. This contrasts with sectors with high energy intensity, such as transportation (also affected by closed airspace), metals and chemical production and consumer discretionary. Developed-market government bonds (short duration) and gold are also considered traditional safe-haven assets; currencies such as the Swiss franc and Japanese yen may also attract inflows.
• That said, it is important to realize that these geopolitical events tend to have only a temporary impact on markets. Over the long term, a well-diversified portfolio of stocks, bonds, and alternative assets can still help investors outperform cash over time. Hence, staying invested remains key given the overwhelming headlines and images we will face in the coming days and weeks.

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