While markets have so far remained relatively calm, professional investors are becoming increasingly aware that the U.S. airstrikes on Iranian nuclear facilities may mark the start of a new and risky geopolitical phase. Fears of escalation, especially around the strategic Strait of Hormuz, are casting a long shadow over oil markets. At the same time, inflation concerns are resurfacing, and central banks are being forced into a wait-and-see mode.
That view is supported by recent commentary from analysts at Allianz, ING, AXA, ABN Amro and Aureus Asset Management, who point to the absence of a classic flight to safe havens and a notably restrained initial market reaction.
The coordinated U.S. attacks on nuclear sites in Natanz, Isfahan and Fordow, hailed by President Donald Trump as a “spectacular military success”, have reignited tensions in the Middle East. While Iran has responded with only limited military action so far, markets are factoring in the risk of a more forceful reaction from Tehran, particularly if hardline factions gain the upper hand.
According to Gregor Hirt, CIO Multi Asset at Allianz Global Investors, the strikes “represent a sudden intensification of the conflict” and create “geopolitical risks with far-reaching consequences for global markets.”
Volatility ahead
Hirt warns of rising volatility, with energy prices and inflation expectations becoming key variables. “Investors should prepare for short-term turbulence, but also remain alert to opportunities,” he said. “As in previous crises, volatility can create attractive entry points.”
Oil markets are already pricing in more extreme scenarios. North Sea Brent blend oil futures on Monday traded at a three week high of just above 76 dollars per barrel, giving up some of their gains made earlier in the day.
According to an ING investment note by Carsten Brzeski, global head of macro, and Warren Patterson, head of commodities strategy, a successful Iranian blockade of the Strait of Hormuz could push oil prices to 120 dollars a barrel, and potentially above 150 dollars in the case of a prolonged crisis. Roughly 20 percent of global oil trade and a quarter of LNG flows pass through this narrow waterway. “A prolonged blockage would push the market into a deep deficit,” ING wrote.
Trump on Monday made clear he prefers to see oil prices decline. “EVERYONE, KEEP OIL PRICES DOWN. I’M WATCHING! YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!” he said on his Truth Social platform.
Rising oil prices are also feeding into inflation expectations. ING estimates that simply incorporating current oil prices into ECB projections would lift the 2025 inflation forecast by 0.6 percentage points. “Forget the fear of an inflation undershoot. We are at the beginning of a new phase of inflation concerns,” Brzeski’s team stated. A July rate cut by the ECB is now unlikely, and the September meeting may become more contentious than previously expected.
‘Inherently unstable’
Mohamed El-Erian, former CEO of bond giant Pimco and advisor to Allianz, struck a cautious tone on Linkedin. “An oil price of $77 is inherently unstable, too low if the conflict escalates, too high if it does not,” he wrote. El-Erian added that while the direct economic effects of the U.S. strikes remain unclear, the crisis is already spreading indirectly via postponed investment decisions and rising production costs.
At AXA Investment Managers, chief economist Gilles Moëc sees a wider range of possible outcomes than markets are currently pricing in. He warns that investors may be underestimating the potential significance of Tehran’s strategic choices. Moëc also noted that the traditional safe-haven status of U.S. Treasuries has not been reaffirmed. “Markets seem concerned about U.S. fiscal policy and are questioning the dollar’s credibility as a safe haven,” he said.
Waiting for Tehran’s next move
Neither U.S. Treasuries nor German Bunds have seen strong inflows following the attacks. Investors appear to view the strikes as targeted actions rather than a prelude to broader war. That perception could quickly change if Iran responds forcefully or if critical energy infrastructure in the region is directly hit.
Some asset managers still see room for stability. Edmond de Rothschild Asset Management believes markets will remain orderly as long as four conditions are met: escalation remains limited, oil production is unaffected, the Strait of Hormuz stays open, and the U.S. refrains from deeper engagement. “Investors are counting on the conflict remaining contained—and diplomatic channels opening,” the firm stated in a market update on Monday.
ABN Amro also maintains a measured tone but points to the central importance of the oil market. Olivier Raingeard, head of Equity Strategy, noted that markets have become accustomed to geopolitical shocks. “Historically, armed conflict rarely leads to prolonged corrections. What we do see is that oil as an asset class is most affected,” he wrote. The bank remains neutral on equities, slightly overweight on high-quality bonds, and continues to include gold as a strategic hedge in portfolios.
A fragile regime?
Han Dieperink, chief investment officer at Auréus Asset Management, argues that investors may be too focused on downside escalation risks while overlooking the potential for fundamental regime change in Iran. “According to Trump, Iran’s nuclear threat has been completely neutralized, while the economy is shrinking and inflation is rising. That makes the regime vulnerable to change,” he said.
Dieperink draws a comparison to the fall of the Berlin Wall in 1989—a convergence of economic crisis, military setback and civic unrest. Should the current regime collapse, a democratic Iran could, according to Aureus, bring millions of extra barrels of oil to market and attract international investment. That would ease global inflation but disrupt OPEC dynamics and reshape regional power balances.
“At the same time, we must recognize that symbolism does not guarantee political reality,” Dieperink cautioned. “Iran’s Revolutionary Guard and Basij militias still possess significant repressive capacity, and regime change requires more than cultural nostalgia. The protests after Mahsa Amini’s death showed both the strength of resistance and the brutality of repression. In that sense, it is wise to be cautious about overestimating symbolic factors at the expense of hard geopolitical realities.”
History offers sobering lessons, from the 1973 oil crisis to the 2003 Iraq war, demonstrating that geopolitical shocks often seep into the real economy only after a delay. For now, investors remain vigilant.
As ING noted: “It says a lot about the times we live in that a U.S. strike on nuclear facilities has not immediately triggered panic selling and market chaos. Apparently, we’ve grown used to just how volatile and unpredictable the world has become.”
This article has been updated to reflect the movement in oil prices on Monday and to add a reference to Trump’s comment on keeping oil prices contained.