The Hormuz risk

A new military conflict involving the US and Iran has started, already affecting the Gulf states—costing lives and further destabilising the region.

From a market perspective, the first point to keep in mind is that wars and geopolitical shocks typically do not derail equity markets over the long run. The chart below shows the performance of European equities from six months before a major geopolitical event to twelve months after, across the main crises of the past ~60 years. In most cases, markets did not experience lasting drawdowns—often the opposite.

There is, however, one notable exception: the Yom Kippur War, which triggered the oil shock. In my view, this is the key uncertainty today. If Iranian forces were to meaningfully disrupt shipping through the Strait of Hormuz, the oil price could spike sharply, with significant macro consequences and renewed inflationary pressure.

We will better assess how plausible this scenario is once the fog of war begins to lift. This morning, Asian equities are down, Brent is up about 6%, and European and US futures point to a weaker open.