Tensions between Israel and Iran are sending shockwaves through global markets. Investors are growing more cautious, closely watching oil-driven inflation, shifting safe-haven flows and uncertainty around central bank decisions.
Javier de Berenguer, market analyst and fund selector at Mapfre Inversión, the investment arm of the MAPFRE Group, a leading Spanish insurance and asset-management conglomerate, cautions that worsening hostilities in the Middle East could “potentially increase the price of energy and subsequently drag down prices across the board.” With around a third of global oil flowing through the Strait of Hormuz, any disruption there could reignite inflation and derail central bank easing plans.
“Inflation has been favourable in most regions, supported by falling commodity and energy prices,” de Berenguer noted, but adds that a resurgence in oil could push the ECB back into wait-and-see mode. “The ECB’s greatest concern now is not inflation or growth, but uncertainty,” he says, especially as inflation shows signs of persistence in markets like the UK.
That uncertainty is prompting more defensive asset allocation. Berenguer advises steering toward “short durations and high-quality credit” in fixed income, while equity allocations should prioritise “companies with pricing power and good growth expectations.” Gold, though up on geopolitical jitters, may lack upside without central bank buying, he added.
Meanwhile, the dollar’s muted rally in response to US-Iran tension is raising eyebrows. Nigel Green, CEO of financial advisory firm deVere Group, called it “a moment of reckoning for the dollar’s reputation as the ultimate safe haven.” Despite US strikes on Iran, the dollar barely moved—showing investors are rethinking its role as a safe haven.
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“For decades, dollar dominance was a given in turbulent times,” Green said. But now, “investors are watching Iran, but also quietly reassessing the dollar in times of crisis.” A stronger dollar move might have been expected given the escalation, but Green argued that US fiscal uncertainty, political dysfunction and overuse of sanctions are weakening the dollar’s appeal.
While some investors still turn to the greenback during stress, others are “favouring commodities, the eurozone, or even emerging markets seen as insulated from US-led risks,” Green shared. Central banks diversifying away from the dollar and growing interest in digital currencies are reinforcing this trend.
Adding to the complexity, Michaël Nizard, head of multi-asset and overlay, and Nabil Milali, multi-asset & overlay portfolio manager at Edmond de Rothschild Asset Management warned that market outcomes depend heavily on Tehran’s next steps. They outlined two possible scenarios: either a full-scale escalation prompting US intervention or a more restrained tit-for-tat, similar to past confrontations. The former would be more disruptive, risking a global downturn.
Despite a recent spike in oil, “the risk of a surge to levels that could weaken the global economy… could be avoided if the Organisation of the Petroleum Exporting Countries, and Saudi Arabia in particular, step up production,” they explain. Gold has acted as a reliable hedge, but sovereign yields haven’t mirrored that flight to safety—suggesting inflation remains a dominant concern.
All three views lead to the same message: stay cautiously optimistic, but be picky and protect your bets. With global capital reassessing both geopolitical risk and long-held market assumptions, fund managers are embracing a more tactical, nuanced approach. As Green puts it, “The greenback’s mystique is fading… we’re in a new era where blind trust in the dollar no longer defines financial crises.”
