Impact of the Iranien Conflict on Financial Markets

Few days after the start of the conflict, market reactions are diverging. While the prices of near-term oil delivery contracts continue to rise, equity markets appear to be stabilizing after two sessions of pronounced sell-offs, particularly observed in European and emerging markets. Sovereign yields, meanwhile, are climbing naturally on the back of higher inflation expectations.

U.S. equity markets are showing relative resilience. In dollar terms, the index has been hovering near breakeven since the beginning of the week. In euros, performance reaches nearly 1.5%, supported by the dollar’s appreciation against the euro.

The greenback has indeed strengthened by around 1.4% against the main global currencies. This movement reflects both its traditional safe-haven status and the dominant position of the United States in global oil and gas production. Conversely, Europe and Asia-Pacific economies see their trade deficits widen during periods of sharp increases in energy prices, which puts pressure on their respective currencies.

In this context, European investors primarily exposed to U.S. equities have experienced relatively limited volatility in their portfolio since the beginning of the week.

Overall, market reactions remain measured. Oil prices are rising, but only returning to levels seen in 2024 and 2025. Moreover, the increase is mainly concentrated in short-term prices, with limited impact on longer-dated futures.

While attention is focused mainly on oil, an increase in the spot price of gas is also observed. However, as with oil, the rise is largely concentrated in spot prices, while longer-term price expectations are evolving more moderately.

Ultimately, the outlook for future scenarios depends largely on the duration of the conflict and the form it may take. The longer the conflict lasts and affects oil facilities or supply routes, the higher the economic costs will be.

A prolonged situation, accompanied by an extended blockage of the Strait of Hormuz, could have significant consequences for global markets due to its potential effects on inflation, growth, and interest rates.

On the other hand, a rapid de-escalation could allow the macroeconomic scenario currently favoured by markets — characterized by relatively stable growth and gradually contained inflation — to regain traction.

In this environment of heightened uncertainty, the equity allocation has been reduced from overweight to neutral. At the same time, an overweight position in U.S. equities relative to other regions is being maintained, in order to benefit from the strength of the dollar and the dominant position of the United States in the energy market.

We continue to monitor the situation closely and will adjust positioning if the evolution of the context warrants it.