Geopolitics dominates 2026 so far, with the now-paused US and Israeli strikes on Iran driving market turmoil and inflationary concerns. While there have obviously been other stories in the financial markets, this conflict is the main concern among investors. The situation is fluid and liable to change day-to-day. At the time of this writing, April 8th, the United States and Iran have agreed to a 14-day ceasefire. During this period, the US pledges not to strike Iran and Iran pledges to reopen the Straits of Hormuz. This ceasefire does not apply to Israel’s conflict with Iran proxy Hezbollah in Lebanon.
In light of this dynamic situation, we will focus on concerns to be aware of if energy prices stay high for an extended period of time, as well as how markets have performed during similar periods in history.
Investment Returns (as of March 31, 2026)
As seen in the chart above, most of the major indices have been negatively impacted by the war in Iran. Somewhat surprisingly, the Russell 2000, the small cap index, is positive this year, unlike all the others. While negative returns are concerning, it is important to recognize that we had a banner year in 2025 in all the major asset classes, so markets are still near their all-time highs.
What is far more acute is the rise in the price of oil associated with the near-total blockage of the Strait of Hormuz. Some 20% of the world’s oil supply flows through the Strait, according to research firm Rapidan Energy. Brent Crude, a commonly cited benchmark for global oil prices, is up roughly 78% year-to-date through April 2nd, per Investing.com. This has translated into the real economy with average regular unleaded gas prices up 40% and diesel up 54% year-to-date, also through April 2nd, per YCharts. The pain at the pump is obviously a drag for US consumers, but increased transportation costs due to the high diesel prices could be an even bigger source of price increases.
What Realistically Could Happen
We can only speculate as to what will happen next regarding the Iran Conflict. Despite the massive uncertainty, there are some broader economic insights that we can glean. PIMCO, one of our fixed income managers, made several clarifying observations regarding this in the March edition of their research periodical, Cyclical Outlook:
- Markets are currently pricing the conflict as a short-term disruption. “However, a prolonged disruption would pose more significant challenges and increase global recession risks.”
- Oil shocks are inflationary for all economies but have different effects on growth. Net oil importers should expect to see reduced economic growth, while net oil exporters should expect to see higher economic growth.
- While the US is technically a net oil exporter, PIMCO believes that “the U.S. will likely still behave as a net energy importer to some extent” because energy is an important input for all the goods that we import.
- Prolonged closure of the Strait of Hormuz will acutely affect Asian manufacturing, which relies heavily on energy products from the Middle East, and could lead to outright supply chain disruption, not simply increased prices.
The Historical Perspective
The economic implications of a prolonged war in Iran, and/or the continued closure of the Strait of Hormuz are sobering, particularly for the investor who might not otherwise be directly impacted by the conflict. However, as always, it is critical to remain grounded in your investment decisions. History provides firm ground for remaining calm. There have been four major Gulf oil shocks: the 1973 First Oil Shock (the Arab oil embargo in response to the Yom Kippur War), the 1979-1980 Second Oil Shock (precipitous drop in oil production after the Iranian Revolution and the start of the Iran-Iraq War), the 1990-1991 Gulf War, and what we are going through today. In the moment, these past oil shocks were quite disruptive, with some of our clients remembering rationing and lines for gas. Over time, these geopolitical crises eventually subsided, and financial markets continued their long-term trend of positive returns. Of course, at their onset, markets may have performed poorly during the major oil shocks, which is distressing. The chart below from Vanguard shows that however painful these selloffs can be, they are typically short lived.
Source: Vanguard
The conflict in Iran is a concern for the U.S. investor. Markets have historically rewarded the patient investor, therefore, we believe it is more critical than ever to stand fast with your financial plan while the market is digesting the news. Unless your personal financial situation has changed, it is our opinion to stick with your plan and ride out the geopolitical uncertainty.
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