A Market Perspective on Israel and Iran’s Latest Conflict

Tensions are high again in the Middle East after Israel launched widescale strikes on Iran early morning local time on 13 June, prompting counterstrikes from Tehran. As the world watched the hostilities unfold between the two regional powers and tough statements from their allies, global oil prices jumped and global markets dipped modestly that Friday.^[i] Global stocks have since stabilised, despite the ongoing fighting, whilst oil prices remain above pre-conflict levels.^[ii] Hence, analysts in financial publications we follow theorise about the market implications should the conflict broaden. During times like this, we urge investors to consider how markets normally deal with such things. According to our research, regional conflicts like this may stoke short-term volatility somewhat, but they are unlikely to disrupt economic activity sufficiently to drive a bear market (typically a deep, long, fundamentally induced drop of -20% or worse).

This is the latest episode in a longer-running conflict in which both sides have suffered the loss of life and destruction. It is a complex, tragic issue with many sociological and political implications, and we empathise with those affected. But like stocks, our focus is on the market-related implications only. And as we find is typical when tensions flare, uncertainty drove volatility.

Some quick background: America and Iran were set to meet for another round of nuclear talks at the weekend of 14 – 15 June. Iran had threatened to strike American assets in the Middle East if Israel attacked Iran over its nuclear programme. On 13 June, Israel made good on its overtures, attacking Iranian nuclear facilities and killing military leaders and scientists. Tehran responded first with drone strikes and then ballistic missiles fired toward Tel Aviv, some of which slipped through Israel’s staunch defences. Both sides continued exchanging fire, and whilst Tehran signalled a desire to de-escalate hostilities and negotiate, Israeli Prime Minister Benjamin Netanyahu rejected talks, based on reports we have read.^[iii] One week later, the fight continues, as does talk of other nations adding military support.

Amongst financial commentators we follow, questions about the market fallout abound. Will Iran block the Strait of Hormuz, the world’s busiest oil shipping channel?^[iv] What are the implications for global oil markets and petrol prices? And if hostilities escalate, will an enlarging regional war pull in other major powers—leading to a global conflict?

Let us begin with the global oil market implications. The consensus view we have seen is that a conflict will disrupt Iranian supply, lifting prices. Yet when we scale Iranian production, its influence appears minimal. Iran accounts for around 4% of global oil production, with most of its exports sent to China.^[v] Not insignificant, but not a swing factor, in our view, when compared to America (22% of world production), Saudi Arabia (11%) and Russia (11%).^[vi] China has infamously been boycotting US oil the past couple months as part of the tariff standoff, but with trade tensions easing, US crude flowing there could be one way supply adjusts.^[vii]

Crucially, the global oil market isn’t tight, based on our observations, with supply and demand roughly in balance. Yes, some major producers are looking to increase production, according to our review of financial publications. For months, the OPEC+ oil cartel has indicated plans to boost output, with leading member Saudi Arabia seeking to punish over-producers and regain market share.^[viii] Yet this is balanced by slowing production in North America (see the multi-year low in US rig count).^[ix]

Even after the recent rise, at $78.74 per barrel as of 19 June, Brent crude oil prices remain at the low end of their 2023 and 2024 range—and well below their recent high in 2022.^[x] Before hostilities commenced, prices were low enough that the EU was trying to lower its Russian price cap.^[xi] Higher prices, if they were to stick, would also alleviate some of the financial pressures causing US producers to consider cutting back.^[xii] So a major shortfall in oil supply doesn’t look likely in the foreseeable future, in our view.

What about the Strait of Hormuz? Yes, Iran’s successfully cutting off this major passage would affect close to one-third of global seaborne oil—most of which is going to Asia.^[xiii] Those disruptions may drive some volatility in markets and force shippers to find alternative routes, leading to delays. But Iran has never blockaded the strait despite a multitude of threats to do so over the past 40 years.^[xiv] It is an open question whether its naval forces are actually capable of the feat, and already, the US Navy has reportedly sent the USS Nimitz to the Middle East to boost America’s presence in the region.^[xv] Plus, Iran’s cutting off access to the strait risks alienating its biggest buyer, China, making it something of an own goal.^[xvi] We don’t dismiss the possibility, and trying to predict politicians’ decisions is near-impossible, in our view. But keeping that historical context in mind argues against a worst-case scenario.

As scary and tragic as the fighting is, our studies of history show this unfortunately isn’t new. There is a long-running history of conflict in the Middle East, but you don’t even need to look that far. Israel has scuffled with Iran twice since the 7 October 2023 attacks by Hamas on Israel led to the war in Gaza. In both cases, we observed short-term volatility arise as investors watched and questioned whether an all-out war between the two would break out, pulling in the US and other major powers. But the tensions quickly dialed down. Oil prices’ initial jolt didn’t last, and stocks moved on quickly. (Exhibits 1 – 2)

Exhibit 1: Global Oil Prices Since 2023

Source: FactSet, as of 20/6/2025. Brent crude oil price per barrel in US dollars, 30/12/2022 – 13/6/2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns. Please see our Annex at the end for an extended, five-year version of this chart.

Exhibit 2: Global Stocks Since 2023

Source: Factset, as of 20/6/2025. MSCI World Index returns with net dividends, 30/12/2022 – 19/6/2025. Please see our Annex at the end for an extended, five-year version of this chart.

Another way to think about this: If the risk of war between Israel and Iran were a major market risk, we think it would likely show up most in Israeli stocks, given they would be most directly affected. Yet Israel was the top-performing nation last year in the MSCI All Country World Index, which combines MSCI’s World and Emerging Markets Indexes, at 40.7%—more than doubling the index’s 19.6%.^[xvii] We don’t think Israeli stocks were missing anything—rather, they likely recognised the tensions were unlikely to spiral in a way that would disrupt corporate earnings materially. And if that is true for stocks local to the conflict, we think logic dictates it is even more true for stocks across North America, Europe and Asia, where the fighting is highly unlikely to disrupt everyday commerce.

Markets’ behaviour throughout this latest Middle East conflict is emblematic of how stocks typically deal with regional conflict, based on our research. There may be some volatility in the run up due to increased uncertainty as markets grapple with the potential for war and fears of wider disruption. But it is usually fleeting—even if conflict actually breaks out. When fighting occurs during a bull market (a long period of generally rising stock prices), our research finds stocks typically resume rising well before it ends.

Even in 2022, when Russian’s invasion of Ukraine was one of many negative stories preoccupying financial commentary, stocks’ downturn (which was a bear market when measured in US dollars) ended that October as the war grinded on.^[xviii] In our view, stocks recognise the scope and scale (or lack thereof) and move forward. Cold as it is, we think they see commerce is likely to continue uninterrupted in the vast majority of the global economy, preserving corporate earnings growth.

Understand, we aren’t dismissing the risk of broader war. These situations are fast-moving and unpredictable. But as challenging as today’s headlines may be, markets have a long history of regional conflicts not being auto-bearish—even in the Middle East.

Annex: Global Oil Prices, June 2020 – June 2025

Source: FactSet, as of 20/6/2025. Brent crude oil price per barrel in US dollars, 16/6/2022 – 19/6/2025. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

Annex: Global Stocks, June 2020 – June 2025

Source: Factset, as of 20/6/2025. MSCI World Index returns with net dividends, 16/6/2022 – 19/6/2025.