Middle East Conflict Update

It has been difficult to ignore the stream of news regarding the recent conflict in the Middle East and the resulting increase in oil prices. In light of these events, we felt it important to share our perspectives during this period of uncertainty.

On February 28th, the US and Israel launched a full-scale offensive against Iran, marking a significant escalation in hostilities that trace back to June 2025, when leaders Trump and Netanyahu conducted missile strikes on Iranian nuclear sites. While that previous 12-day conflict ended in a US-brokered ceasefire, the current operation, Operation Epic Fury, is far greater in scale and significance. The offensive targeted critical infrastructure and leadership, resulting in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. Iran retaliated with drone and missile strikes against regional neighbours aligned with the US or Israel. However, of greatest concern to global markets is the de facto closure of the Strait of Hormuz. This waterway connects the Persian Gulf to the Arabian Sea and allows the passage of roughly 20% of global oil supply. Having traded between $60 and $70 for much of the past year, oil prices spiked toward a high of $120 before retracing to around $80, at the time of writing the price has moved back up to around $100 after a number of vessels were struck in the area.

These increased fuel costs represent a significant inflationary force, with some estimates suggesting that sustained high oil prices could add 1% to global inflation. This has shifted market expectations for interest rates. Central banks in the UK, US and Europe were previously expected to cut rates over the coming year. However, the US is now projected to ease much more slowly and rate hikes have become a possibility for the UK and Europe.

In reaction to this, equity markets have experienced heightened volatility. Emerging Markets, Europe and Japan suffering the most due to their vulnerability to energy shocks. Conversely, the US remains more insulated as the world’s largest oil producer. Fixed income markets have also faced turbulence as changing rate expectations weigh on asset prices. While government bond yields have risen across major regions (yields move inversely to prices), corporate debt has fared no worse, suggesting that while investors are concerned about “higher for longer” rates, they are not yet worried about the strength of the global economy yet.

These events have naturally driven discussion within our investment team. Late last week, the potential for adding inflation protection through energy exposure was raised. While we explored the merits of the idea, the following Monday saw the most volatile trading day in the history of oil, meaning a poorly timed entry earlier in the week could have left an investor 30% down even with prices remaining well above their pre conflict levels. Our conclusion was that our welldiversified portfolios already provide sufficient structural protection against interest rate shocks. We also discussed further reducing interest rate sensitivity but ultimately decided to maintain our current positioning. We have deliberately kept a low sensitivity to rate changes in our fixed income portfolios for precisely this type of environment, reducing this further would risk sacrificing potential performance by taking too little risk.

Furthermore, our diversified alternative strategies continue to serve their purpose in dampening volatility. With a number of strategies including; volatility options trading, structured products and absolute return, we feel we have several risk mitigators in place to navigate uncertain times.

Julian Bradshaw FPFS
Director
Investment Committee Chair

12th March 2026