Mar 5, 2026 Andrew Low

Perspectives on the Iran conflict

A widening regional war would create a lot of uncertainty, especially around how long the conflict lasts and how much it disrupts the global economy. Iran sees the situation as a threat to its survival, which raises the chance of a longer, broader conflict. The biggest economic risk is higher oil prices, but financial markets could also become more volatile as investors demand higher risk premiums.

🛢️ Key economic risks in simple terms

Oil supply and prices

• Iran is a major oil producer, and conflict could disrupt its output.
• The biggest danger is the Strait of Hormuz, a narrow waterway where 20% of the world’s oil passes through.
• If Iran blocks or mines the Strait, global oil supply could be disrupted for months, pushing oil prices sharply higher.
• Higher oil prices act like a tax on households and businesses, slowing economic growth.

Inflation

• Inflation has already been stubborn.
• A spike in oil prices would push headline inflation higher around the world.
• Central banks usually ignore temporary oil-driven inflation, but:

• In the US, higher inflation could delay expected interest rate cuts.
• In Australia, the RBA may feel pressure to raise rates again or keep them high for longer.

📉 Key market risks

Risk premiums and volatility

• Stock markets are currently expensive, with valuations near record highs.
• Wars typically cause short-term spikes in volatility and higher risk premiums.
• Markets usually stabilise unless there is a long-lasting oil supply shock, which remains a real possibility.

Currency (AUD)

• The Australian dollar has been strong recently, helped by interest rate differences.
• But the AUD is risk‑sensitive and tends to fall when global uncertainty rises or energy prices spike.
• Near-term weakness is likely, though the medium-term outlook is more balanced.

Safe-haven assets

• In times of conflict, investors often move money into gold and US government bonds.
• Gold prices have already climbed back near record highs.
• US Treasury yields have fallen as investors seek safety, though inflation and safe-haven flows will push yields in opposite directions.

🔥 Possible escalation scenario

The longer the conflict lasts, the higher the chance of the more severe scenarios.

🧭 What investors can do

• Stay diversified and rebalance regularly to avoid unintended concentration risks.
• Stay invested rather than trying to time the market—volatility is normal in geopolitical shocks.
• Understand your portfolio’s exposures, especially to sectors or assets sensitive to oil, inflation, or credit risk.
• Use scenario analysis to understand how different outcomes might affect your investments.
• Avoid big, high‑conviction bets in a low‑conviction environment; stick close to neutral positions.

Should you have any questions or wish to discuss the note further, please do not hesitate to reach out to your adviser.