The escalation of conflict in the Middle East has once again pushed geopolitics to the forefront of investment decision-making. Direct strikes on critical energy infrastructure and rising tensions around key transit routes such as the Strait of Hormuz have underscored the fragility of global supply chains.
For investors, this introduces a complex mix of risks: renewed inflationary pressures, heightened market volatility, and growing uncertainty around global growth and supply chains.
Energy markets have been particularly sensitive. As oil and gas prices react to supply-side fears, the potential for a sustained energy shock is forcing investors to reassess portfolio positioning. At the same time, central banks may find themselves constrained, caught between inflation risks and weakening economic momentum.
At their March meetings, leading central banks sat on their hands and kept interest rates unchanged as they keep a close eye on developments in the Gulf. It’s a big change as earlier this year, market expectations were that we would start to see base rate cuts. That seems highly unlikely right now, with many experts predicting rate hikes as the year goes on.
Against this backdrop, investors face a familiar but increasingly difficult challenge: how to remain resilient in portfolios while navigating an environment defined by rapid change and limited visibility. Some are leaning into diversification, others into alternatives or defensives, but all are grappling with the same core question of how to balance risk and opportunity.
Here at Wealth DFM Magazine, we reached out to a range of experts for their views on the risks and opportunities which investors are facing right now in such unprecedented market conditions.
Market uncertainty and the search for resilience
As the situation in the Gulf escalates, markets wobble and prices of oil and gas have risen sharply to reflect supply-side issues, inflation risks resurface. Investors are trying to steer a way through such unprecedented uncertainty, wondering how long the conflict will continue for and what the longer-term implications might be. Many are seeking resilience from alternatives, others are trusting in diversification.
Bonds and infrastructure: positioning for different outcomes
Ben Kumar, Head of Strategy – wealth, public policy and investment at 7IM, said:
“I think there are two things which investors should be interested in for the medium-to-long term.
“The first is government bonds, especially in the US and UK. Both countries have seen rates on bonds spike upwards, as investors worry that rate cuts might not come through as quickly as expected. I think that offers a great chance to buy bonds at a higher yield than a month ago.
“I think the Iran conflict has two realistic paths. If things de-escalate, energy prices settle, and inflation fears unwind, bonds should do just fine. And if the conflict drags on, I think the impact on growth will trump that on inflation, pushing investors away from expensive, exposed equities into bonds. Adding a bit more protection to portfolios at reasonable yields makes a lot of sense.
“The second opportunity isn’t about betting on short-term oil prices. It’s about the change from supply chain efficiency to supply chain resilience. Getting all of your energy from one place is convenient until that place can’t deliver and you’re left gasping for fuel.
“Companies that can generate and transmit power, through renewables, nuclear or long-term infrastructure, are going to be seeing a lot of demand, whether that’s from governments or from giant corporations. The Iran war is another reminder that if you don’t control something completely, you might end up with none of it. Providing predictability is going to be an increasingly valuable asset.”
Stagflation risks and shifting market dynamics
Daniela Hathorn, Senior Market Analyst at Capital.com, said:
“The biggest portfolio risk in this environment is not simply higher oil, it’s the potential for a sustained energy shock to collide with already-fragile growth. If disruption in the Gulf persists, higher crude and refined fuel prices could push inflation expectations back up just as labour markets are softening. That creates a stagflationary risk: slower growth alongside firmer prices.
“For investors, that’s uncomfortable territory. It complicates central bank policy, limits the scope for rate cuts and keeps real yields elevated, a headwind for both equities and duration-heavy portfolios.
“The second risk is financial conditions tightening indirectly. A stronger dollar, wider credit spreads and volatile bond yields can amplify stress, particularly for emerging markets and energy-importing economies. That could pressure global equities and credit.
“In terms of opportunities, energy producers and select commodity-linked assets stand to benefit if supply risk remains priced in. Defensive sectors with pricing power may also outperform in a higher-cost environment. Gold can remain supported if geopolitical uncertainty persists, though real yields remain a key variable.
“Ultimately, the key variable is duration. A short, contained episode would favour a relief rally. A prolonged disruption would shift portfolios toward defensives, energy exposure and inflation hedges.”
Expanding diversification through alternatives
Nicolo Bragazza, Associate Portfolio Manager at Morningstar Wealth, said:
“Periods of heightened geopolitical tension and commodity price swings can challenge traditional portfolio construction, particularly when the usual diversification benefits between equities and bonds become less reliable. In this environment, investors need to broaden their approach and draw on a wider range of tools to stay resilient.
“Alternatives can play a useful role within multi asset portfolios. Liquid hedge fund strategies offer flexibility through shorting and the ability to shift quickly across markets, which can help generate returns that are less tied to conventional asset classes. However, manager and strategy selection is critical. We continue to favour strategies such as global macro, equity market neutral and managed futures, which have historically offered stronger diversification characteristics.
“Within fixed income, inflation-linked bonds – especially with shorter maturities, remain worth considering. Their inflation adjustment can help cushion the impact of rising yields while limiting sensitivity to interest rate moves.
“Emerging markets are often pressured during global risk off phases, but market dislocations can also create selective opportunities. Emerging markets continue to be an area of interest for us, as we maintain an overweight to Chinese and Brazilian equities.”
Commodities, gold and the macro backdrop
Nitesh Shah, Head of Commodities and Macroeconomic Research, WisdomTree, said:
“The escalation in the Gulf, particularly around the Strait of Hormuz, represents a classic supply-side shock with global macro implications. Even without a full disruption, heightened security risks and rising shipping costs are already embedding a geopolitical premium into energy markets.
“Hormuz is a critical chokepoint for global oil flows. Any sustained tension risks keeping oil prices structurally higher, feeding into inflation expectations and complicating the disinflation path central banks had anticipated for 2026. The longer the conflict persists, the more supportive the backdrop becomes for oil, with supply risk outweighing demand concerns.
“Gold is also likely to benefit in this environment. As geopolitical uncertainty rises and real rates expectations become more volatile, gold’s role as a hedge against both inflation and risk aversion becomes increasingly attractive.
“The situation is particularly sensitive in Europe. With gas inventories relatively low, any spillover into liquified natural gas flows could see Title Transfer Facility prices spike sharply, reinforcing regional inflation pressures.
“For central banks, this creates a difficult trade-off. Rate cuts may be delayed as policymakers assess second-round effects, raising the risk of a more prolonged period of restrictive policy.
“Overall, a drawn-out conflict increases the likelihood of a stagflationary impulse, favouring commodities and defensive assets over traditional risk assets.”
Taking the long-term view amid short-term volatility
Tom Stevenson, Investment Director, Fidelity International shares his thinking as the Gulf conflict entered its fourth week saying:
“Although investors are nursing short-term losses in their portfolios, they are still sitting on strong gains over the medium term. Since markets bottomed out in October 2022 after that year’s upward reset of interest rates, stock market indices around the world have registered big rises. The MSCI emerging markets index, for example, bottomed out at 845 in 2022. Although, it had fallen from a high of 1,610 at the end of February to 1,470 by the end of last week, that still represented a gain of more than 70% from the 2022 low point.
“Other markets have enjoyed similar trajectories. Japan’s Nikkei 225 index has more than doubled from its level at the start of 2023. The MSCI World index was around 75% higher than its 2022 low point at the end of last week. One of the striking features of global stock markets over the past month has been the reversal of regional leadership. Through 2025 and the first two months of this year, the US lagged behind other markets. Over that 14-month period, the S&P 500 delivered a 17% return and the world index, dominated by US stocks, was 23% up. By contrast, the FTSE 100 was 34% higher, Japan’s Nikkei rose 48%. Emerging markets were 50% up and Europe was 42% higher.
“Over the past month or so, that leaderboard has been turned on its head. Protected by its energy independence and still rising corporate earnings, the US market had lost only 5% from the February high by last Friday and the world index was 7% lower. The FTSE 100 was 9% down, as was the Japanese market and emerging markets. European shares were 12% off their peak.
“The swing in relative performance makes a strong case for holding a diversified portfolio, geographically if not at the moment by asset class. Holding a good spread of investments can provide a smoother ride over the longer term.
“The longer-term context also argues for not trying to time the market. Although there is a good case to be made that buying the dip in the market may not be as immediately rewarding as it has been during many recent corrections, for longer term investors the biggest mistake can be reducing exposure to the long-term outperformance of shares over inflation and over other assets. The ups and downs of the market during periods of uncertainty are the price investors pay for those superior long-term returns.”
Questioning gold’s role as a safe haven
Jock Henderson, Investment Analyst at CG Asset Management, said:
“CG Asset Management runs defensive multi-asset funds focused on capital preservation and absolute return. On 12 March we made the decision to exit our modest position in gold. While the precious metal has performed exceptionally well for us throughout 2025 and the beginning of 2026, its pricing has become increasingly sentiment-driven. The speculative outlook for gold brings excess risk into our portfolio, and we took the opportunity to realise our gains at near all-time highs.
“Recent demand has been pre-dominantly narrative-driven, with strong retail investor flows into gold ETFs contributing to heightened volatility. The crisis in the Middle East has exposed this volatility and reinforced the view that gold is trading as a story rather than on fundamentals.
“Inflation expectations have risen dramatically following the closure of the Strait of Hormuz and subsequent supply constraints, while the Federal Reserve, Bank of England and European Central Bank have all issued hawkish commentary about the potential impact on interest rates.
“However, instead of acting as a diversifier, gold has traded as a proxy for risk appetite. Previously, an investor might expect gold to benefit as a haven asset during a time of conflict or as a hedge against inflation, yet it has sold off as investors look to take risk off the table.”
Rebalancing fixed income for resilience in uncertain markets
In their latest Cyclical Outlook titled, “Layered Uncertainty: Conflict, Credit Stress, and AI” published on 24th March, PIMCO’s Tiffany Wilding, Economist, and Andrew Balls, CIO Global Fixed Income, concluded as follows:
“This is a market that rewards preparation for an uncertain set of outcomes. Higher yields, wider dispersion, and greater volatility create a favourable backdrop for active management, in our view, when portfolios are built with liquidity and flexibility in mind.
“For investors, we believe it’s a compelling time to consider recentring portfolios toward fixed income, to use global diversification and inflation tools intentionally, to treat liquidity as an asset, and to emphasize quality and collateral in credit.
“In short, this is a moment to consider rebalancing toward resilience, positioning portfolios to navigate dispersion while staying ready to act when opportunities arise.”
Keep calm and carry on
As geopolitical risks and energy market volatility persist, uncertainty remains high. Experts agree that resilience, diversification and flexibility are essential. Whether through fixed income, alternatives or commodities, portfolios must withstand multiple outcomes, ensuring investors stay positioned to manage risks while capturing long term opportunities in this highly unpredictable environment.
This piece was included in the latest issue of Wealth DFM Magazine, which you can read here!
