On February 28, 2026, U.S. and Israeli forces launched coordinated military strikes on Iran (Operation Epic Fury), targeting nuclear facilities, military infrastructure and senior leadership. Iran's Supreme Leader, Ali Khamenei, was killed, and retaliatory strikes have since begun. The situation remains fluid.
Military action that results in civilian death and displacement is, of course, a grave humanitarian tragedy, and we hope for a swift resolution. The financial market impact of such events often proves far less severe than the human toll and tends to be concentrated in specific markets and economic sectors. In the Middle East, that nexus is energy production and its transit. In this post we intend to examine the scale of the potential impact and address a question that may be on your mind: how does all of this affect my portfolio?
The immediately affected region represents approximately 2.6% of global GDP, with Iran accounting for approximately 0.4% on its own. Importantly, even during active conflict, commerce slows but does not halt entirely. If we assume a 50% decline in Iran's GDP and a 10% decline across the broader region, the drag on global GDP would be approximately 0.4%, roughly equivalent to five days of U.S. economic output. This is certainly significant for those within the region, but not at a scale that alters global economic trajectory.
The impact, however, does not stop at regional borders. It’s likely no surprise that energy is the most consequential export at risk. For perspective, the Middle East accounted for approximately 30% of global oil production and 17% of global natural gas production in 2024. Material disruption to these facilities would place upward pressure on inflation. The more likely friction point, though, is not at the well or refinery. It is in transit. The Strait of Hormuz is a 21-mile passage and one of the world's most critical choke points for seaborne energy. In 2024, flows through the Strait accounted for more than one-quarter of total global seaborne oil trade and approximately 20% of global oil and petroleum product consumption. Separately, approximately 20% of global liquid natural gas (“LNG”) trade also transited the Strait in 2024.
That flow, however, is not distributed evenly across the globe. Roughly 84% of crude oil and LNG volumes moving through the Strait are destined for Asia, with Europe a secondary recipient of natural gas. The U.S. has limited direct exposure, given its status as a net commodity exporter. Even so, oil is priced globally, and rising prices would affect U.S. producers and consumers alike.
History offers no shortage of data points on how markets respond to military conflict. The pattern is consistent: when conflict remains regionalized, the market impact tends to be transitory. Initial reactions are typically negative, as uncertainty drives investors toward safe havens such as bonds and the U.S. dollar.
With limited public appetite for a sustained U.S. military engagement in Iran, and the risk that prolonged conflict could lift inflation ahead of an affordability-focused midterm election later this year, we anticipate (and hope for) either resolution or meaningful de-escalation in the near term.
Given the transitory and regionalized nature we described above, we believe the portfolios we manage are well positioned to navigate near-term volatility. But the situation remains fluid and we should expect heightened market volatility to persist for the foreseeable future. Diversification is key in uncertain times and we will, of course, continue to monitor developments and the potential impact on portfolios.
The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding investments, sectors or markets in general. The above statistics and/or commentary have been obtained from sources we believe are reliable, but we cannot guarantee their accuracy or completeness. Past performance is no guarantee of future results.
Specific securities discussed herein are illustrations and do not represent securities purchased, sold or recommended for client accounts. Such information does not constitute, and should not be construed as, a recommendation to buy or sell specific securities.
This is not a complete analysis of every material fact regarding any company, industry, or economic condition. Due to shifting market conditions, all expressions of opinion are subject to change without notice.
The information contained in this document does not cover all tax strategies that may apply, is not a complete guide to tax planning, and does not constitute the rendering of legal, accounting, or other professional advice or opinions on specific facts or matters. Before implementing any ideas suggested here, consult with your tax advisor regarding your specific tax situation.
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