The US-Iran conflict that began on 28 February has entered what our research partners describe as a “new and more painful phase.” Energy production infrastructure is now being directly targeted. Damage to Qatar’s LNG facilities has affected an estimated 17% of the country’s output and will likely take years to repair. The US remains the top producer of LNG with Qatar and Australia vying for second place closely. The Qatari facilities are responsible for nearly 20% of global LNG supply putting the affected global supply at about 3-4%, or the equivalent of circa 12-13 million tons per year of LNG going offline. Brent crude remains in the US$100–110 range, and shipping traffic through the Strait of Hormuz is operating at roughly 7% of normal levels. The likelihood of a swift resolution has decreased. Here’s an update on the evolving situation and the potential impact on markets and portfolios.
Three weeks into the conflict, the situation has escalated rather than de-escalated. The most significant recent development is that upstream energy production infrastructure is now being targeted, not just shipping and midstream facilities. Strikes on Qatar’s LNG infrastructure knocked out an estimated 17% of the country’s output, with estimates pointing to about 5 years of disruption at this stage.
Iran’s new Supreme Leader, Mojtaba Khamenei, continues to state that the Strait of Hormuz will remain closed; however, select Chinese-linked, Indian, and Turkish vessels have transited. BlackRock data shows overall Hormuz shipping passages are running at just 7% of normal levels. Iran has begun laying mines in the waterway and continues attacking regional infrastructure, despite heavily degraded conventional military capability: ballistic missile attacks towards the UAE have fallen to roughly 7% of their initial intensity.
The International Energy Agency (IEA) estimates that global oil supply has plunged by approximately 8 million barrels per day in March and has authorised the release of 400 million barrels from strategic petroleum reserves. However, these releases are structured as loans that must be repaid at a 20% premium by 2026–27. This will suppress near-term prices while lifting deferred contracts and keeping a floor under future oil prices. Brent crude has been volatile within the US$88–120 range and currently trades around US$100–110 per barrel.
There are some tentative signals that could support de-escalation: BCA Research notes that President Trump appears to be distancing himself from certain Israeli actions, and BlackRock observes a feedback loop in which the economic and political fallout from the conflict creates pressure to resolve it. However, the targeting of production infrastructure has meaningfully reduced the probability of a quick resolution.
This remains an energy-led supply shock with sharply uneven regional effects. Asia is the most vulnerable region given its energy import dependence (Japan sources 70–90% of its oil via Hormuz), while several major European economies source 20–45% of oil via the Strait. Energy-importing markets have borne the brunt: South Korea’s Kospi has fallen approximately 14%, European and Japanese equity indices are down 8–9%, and the S&P 500 has dropped below its 200-day moving average. Emerging market equities are down roughly 9% since the conflict began.
Beyond crude oil, disruptions are cascading through refined products, industrial, and agricultural supply chains. Diesel crack spreads (the differential between crude oil prices and refined diesel prices) are at their highest since the beginning of the Ukraine war. Petrochemical plants are curtailing output. With spring planting underway in the Northern Hemisphere, higher fertiliser and transport costs pose a lagged risk to crop prices. Structural gas tightness from the Qatar LNG damage will persist even if hostilities ease. This is not a temporary dislocation but a multi-year supply constraint.
Growth forecasts have been cut. Goldman Sachs has reduced US GDP growth to 2.2% and pushed the first Federal Reserve rate cut to September 2026 due to inflationary pressures from higher commodity prices. BCA Research places US recession probability at 40% and assigns a 50% chance of recession in Europe and Japan. The Fed is expected to adopt a hawkish tone with higher dot-plot projections for the Federal Funds rate. The bar for actual rate hikes remains high with cuts being pushed out, not replaced by hikes, unless inflation expectations become materially unanchored.
An important observation from BlackRock is that traditional portfolio diversifiers are being challenged. Government bonds are not providing the ballast investors typically expect during periods of geopolitical stress. This is characteristic of an inflationary supply shock, where higher energy costs push up both inflation and bond yields simultaneously, undermining the traditional role of fixed income as a portfolio hedge. Gold prices are near their lows for the month and have faced losses since the beginning of the Iran conflict when the U.S. dollar strengthened and oil prices began to surge. We think this could be on the back of last year’s price strength which saw the surge about 55% in AUD terms. There’s generally a negative correlation between the US Dollar and gold which we think could be at play as well as some investors seeking income-yielding assets.
The range of possible outcomes remains wide. Since our last update, the balance of risks has shifted: the likelihood of a quick de-escalation has decreased, while the probability of a prolonged disruption or further escalation has increased. This reflects the targeting of energy production infrastructure, the structural damage to Qatar’s LNG capacity, and the absence of meaningful diplomatic progress. Drawing on the latest intelligence from BCA Research, Goldman Sachs, Morgan Stanley and BlackRock, we see three plausible paths.
In a managed de-escalation scenario, diplomatic and military pressures would help contain the conflict over the coming weeks. Shipping lanes would gradually reopen, and oil prices could fall back toward US$70–85 per barrel. Equity market weakness would likely prove temporary, and central banks could resume easing later in the year. However, even in this more benign outcome, the damage to LNG infrastructure would continue to constrain gas supply for an extended period.
The most likely scenario is a prolonged disruption, where the conflict continues for one to two months and infrastructure damage persists. In this case, shipping through Hormuz would remain constrained, and supply chain disruptions would broaden. Oil prices would likely remain elevated in the US$100–120 range, with an upward bias. Economic growth would slow further, and equity markets could experience moderate declines. Structural tightness in gas markets would remain a key feature regardless of how the conflict evolves.
A more severe but lower-probability outcome is a full escalation, involving a complete closure of the Strait of Hormuz and widespread attacks on regional energy infrastructure. This would likely trigger a sharp spike in oil prices above US$120–150 and significantly increase the risk of a global recession. Equity markets could fall materially, while safe-haven assets such as the US dollar and gold would be expected to outperform. Even in this scenario, the shock would likely prove self-limiting over time, but the near-term economic and market impact would be severe.
We are monitoring the situation daily, drawing on analysis from BCA Research, Goldman Sachs, BlackRock, J.P. Morgan and Morgan Stanley. The overall emphasis remains on patience rather than aggressive repositioning, with oil prices, geopolitical developments and Hormuz shipping flows serving as the key indicators for any shift in stance.
Diversification continues to cushion the blow. Portfolios with meaningful US and domestic exposure have fared materially better than those concentrated in energy-importing regions. Cash and commodity exposures are also providing a buffer. However, we note that traditional bond allocations are providing less shelter than usual in this inflationary supply shock environment. Alternative assets that exhibit low correlation to these traditional asset classes are likely to provide diversification benefits to portfolios.
We are tilting towards quality and defensive sectors. We favour companies with strong balance sheets, pricing power and earnings resilience. If the conflict proves temporary and markets correct further, quality large-cap technology and select industrials could become attractive at lower valuations.
We are watching for concrete resolution signals. Brent crude retreating towards US$85 per barrel would indicate reduced macro pressure. Other key indicators include commencement of US Navy escort operations; resumption of negotiations; changes in Iran’s military posture; and the trajectory of refined product, gas and agricultural prices. We also note that the structural damage to LNG supply will keep gas markets tight for an extended period, which has implications for energy-sensitive sectors regardless of how the broader conflict resolves.
Our portfolios are broadly diversified across asset classes, geographies and sectors, which limits concentration risk to any single outcome. This diversification is designed precisely for periods like this — where the range of scenarios is wide and conviction on any single path is premature. We will continue to keep you informed as events develop.
Disclaimer: This document has been prepared by Findex for general information purposes only. It does not take into account your personal objectives, financial situation or needs. Before making any investment decision, you should consider seeking independent financial advice. Past performance is not a reliable indicator of future performance. Findex makes no representations or warranties as to the accuracy or completeness of the information contained in this document.
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