Market Update: Middle East Crisis

U.S. and Israeli military strikes on Iran and the death of Supreme Leader Ali Khamenei introduced heightened geopolitical risk into global markets.

Market Reaction

Initial market responses aligned with expectations. Oil prices experienced their largest surge in several years due to supply disruption concerns. Equity markets declined modestly within typical recent volatility ranges. Bond yields decreased slightly, reflecting growth uncertainty. The current market reaction does not suggest panic conditions.

Energy as Primary Risk Vector

Approximately 20 million barrels daily of crude plus roughly 5 million barrels of refined products transit the Strait of Hormuz, representing about 20% of global oil flows and 10% of global liquefied natural gas flows. Supply disruptions exceeding approximately 1 million barrels would meaningfully tighten global energy markets and raise recession risks.

Scenario Analysis

Base Case: Relatively contained conflict with limited infrastructure damage; market refocus on economic fundamentals. Downside: Prolonged disruption to energy flows or broader regional escalation, materially increasing recession risks. Upside: Rapid de-escalation with no sustained energy disruption; markets would look through near-term volatility.

We emphasize diversification across asset classes and regions, exposure to quality businesses, and maintaining liquidity. Volatility could create selective entry opportunities once risks are fully priced.