Investors are increasingly focused on what the war with Iran could mean for the global economy. The surge in oil prices is reviving fears of stagflation, as higher energy costs threaten to push inflation higher while economic growth comes under pressure.
That concern is not yet widely shared. Christopher Dembik of Pictet argues that financial markets are behaving as if the Middle East’s entire oil production had suddenly been cut off from global trade. In his view, that interpretation does not match reality on the ground. Tankers are still moving through the Strait of Hormuz, and some oil flows are already being rerouted through alternative routes such as Saudi Arabia’s east-west pipeline.
“According to us, spot oil prices are partly disconnected from the reality on the ground, suggesting a panic reaction that will likely fade as quickly as it appeared once the military situation becomes less tense,” Dembik said Monday morning.
Rabobank sees mix of 1973, Ukraine and Covid
Still, a darker interpretation is gaining ground. Michael Every, senior global strategist at Rabobank, put it bluntly.
“In short, this is now starting to look like a potential combination of the 1973 post-Yom Kippur War oil shock, the 2022 Russia-Ukraine War commodity shock, and the 2020-21 Covid supply chain shock. The longer this goes on, the more exponential the damage becomes in a domino effect, which is exactly what oil is now showing to a market that saw some takes last week that ‘things could be a lot worse.’ Well, now they are: and if we are still in the same position this time next week, things could be quite terrifying,” the Rabobank strategist said.
Europe’s refining gap
Every argues that the shock goes far beyond crude oil alone. Diesel, jet fuel, fertilizers and other industrial inputs are also part of the equation. A broader conflict would therefore disrupt not only energy markets but global supply chains as well.
Europe may be particularly exposed. Refining capacity in the region has been declining for years, increasing reliance on imports. European airlines, for example, depend heavily on jet fuel exports from the Gulf, while the diesel market was already warning of a potential supply crunch even before the Iran war began.
Ipek Ozkardeskaya, senior analyst at Swissquote, reaches a similar conclusion. Oil prices may already have peaked, she said, but they are likely to remain elevated for weeks or even months.
“Oil prices will reach a peak at some point – maybe they already have, maybe there’s more to come – but they are likely to fluctuate at elevated levels for weeks, perhaps months,” she wrote in a note to clients.
Equity weighting reduced
Some asset managers are already adjusting portfolios. Dutch investment manager Optimix said it has reduced the equity weighting in its managed portfolios. According to the firm, risks are beginning to accumulate, including the war around Iran, the rapid rise of artificial intelligence and growing stress in private credit markets.
Arnout van Rijn, portfolio manager at Robeco, also pointed to what he described as an unusual reaction in bond markets, where government bond yields have risen over the past week. That is atypical, since government bonds normally rally when uncertainty rises. For Van Rijn, the move suggests that investors are already looking beyond the war itself toward a scenario of higher inflation and increased government borrowing needs.
Negative supply shock
Edmond de Rothschild Asset Management is similarly cautious. The firm argues that what initially appeared to be a targeted military intervention could evolve into a prolonged regional war of attrition.
“Today’s shock looks like a negative supply shock, combining inflationary pressure with an economic slowdown,” the asset manager told clients.
Pierre Pincemaille of DNCA Investments draws a similar link between geopolitics and macroeconomics. In his view, oil and gas act as the transmission belt through which geopolitical tensions spill into financial markets. His analysis also notes that interest-rate expectations are already shifting. The probability of a Federal Reserve rate cut has fallen sharply, while markets are increasingly pricing tighter European Central Bank policy by the end of 2026.
ECB executive board member Isabel Schnabel warned last Friday in a speech in New York that the current geopolitical and macroeconomic environment could push inflation pressures higher.