Iran conflict market update – two-week ceasefire announced

Events have moved quickly, and markets have seen extended bouts of volatility. Our aim is to explain what has happened, how markets are responding, and why we continue to believe that a measured, long-term approach remains the correct course of action in this unpredictable geopolitical environment.

What has happened so far?

The US and Israel launched major strikes on Iranian targets at the end of February, killing Iran’s supreme leader and hitting military and nuclear sites. Iran retaliated with missile and drone attacks across the Middle East and declared the Strait of Hormuz effectively closed for the time being. This waterway is a critical artery for global energy supplies, carrying around a fifth of the world’s seaborne oil and liquefied natural gas shipments. As a result, energy prices have risen sharply since the initial attacks as supply disruption escalates.

Perhaps the most significant development for the global economy was the series of attacks on energy infrastructure, with Iran launching a series of strikes on critical oil and gas facilities across the Gulf. The most consequential attacks targeted Qatar, home to the world’s largest liquefied natural gas (LNG) export hub, in what regional governments are calling a direct assault on global energy stability.

Two-week ceasefire announced

We welcome the announcement of a temporary pause in hostilities and, above all, the respite it offers people in a region that has endured prolonged conflict. Any break in fighting brings much‑needed relief to local communities, allows humanitarian assistance to flow more freely, and creates at least the possibility of further de‑escalation.

However, it is important to stress that the ceasefire remains fragile. There have already been reports of strikes on Lebanon and retaliatory attacks by Hizbollah on Israel, underlining how quickly tensions can resurface. These incidents highlight the limited trust between the parties and the narrow margins for error on both sides.

The broader political picture also remains challenging. The opposing sides are still far apart in their negotiating positions, and there is little evidence so far of meaningful progress towards a more durable settlement. In that context, it is too early to conclude that the ceasefire will hold or that the underlying risks to regional stability have materially diminished.  From an economic and market perspective, the key relief will come from energy-related transport routes opening and returning to pre-war levels, and that still appears to be a distant hope at this stage. 

Nevertheless, we hope that the ceasefire proves durable and can serve as a foundation for further diplomatic engagement. We will continue to monitor developments closely, including implications for energy markets, regional trade and global investor sentiment.

Another energy shock: understanding the risks

Substantial damage to critical energy assets could have lasting effects on the oil market, and Brent crude prices – the industry benchmark – surged above $100 a barrel in response. Iran also dug in politically by appointing Mojtaba Khamenei, the second son of the late Iranian supreme leader Ayatollah Ali Khamenei, as his successor. This signals a continuation of the regime’s existing ideology, and he is unlikely to readily capitulate to US demands. Indeed, US president Donald Trump has already indicated he views Mr Khamenei is an “unacceptable” choice.

If the conflict becomes protracted and oil remains above $100 a barrel, the inflationary consequences could be significant. Elevated oil prices feed directly into global inflation by raising transport and energy costs across supply chains, increasing production expenses for manufacturers, lifting household fuel bills and pushing up the price of goods and services. As oil is a vital input for sectors ranging from freight to fertiliser, sustained price pressures can erode corporate margins and complicate central banks’ efforts to bring inflation back to target. Unsurprisingly, since the initial strikes, markets have already pushed out expectations of interest rate cuts in major Western economies.

Equity markets: volatility, but signs of resilience

Major stock indices initially fell as investors digested the risk of prolonged supply disruption, with some of these losses regained after the ceasefire news, which caused a broad market rally 

Across global markets, sectors tied to travel, airlines and hospitality have weakened due to disrupted routes, while energy and defence shares have risen as investors rotate towards areas seen as beneficiaries of higher oil prices and elevated geopolitical risk. This volatility is likely to persist.

Disciplined risk management and a long-term investment horizon remain the most effective tools for navigating periods of geopolitical stress. Short-term market moves, however dramatic at the time, rarely alter long-term investment outcomes.

Bond markets: signalling broader economic implications

Yields on government bonds rose as markets reassess the interest rate outlook, but this situation has also eased following the ceasefire announcement. Bond markets initially endured a heavy sell‑off, with yields climbing to multi‑month highs after the Federal Reserve, European Central Bank and Bank of England all signalled that rate cuts were increasingly unlikely this year, prompting traders to price in potential hikes instead. Prior to the conflict, markets had expected the next move in interest rates in major Western economies to be down. There is still no clarity on what lies ahead for borrowing costs. 

Markets are behaving in line with previous geopolitical shocks: a sharp initial reaction followed by stabilisation as investors assess how long the crisis might last.

Potential scenarios

Despite the announcement of a two‑week ceasefire, we believe the situation continues to align most closely with the second of the scenarios outlined below. The ceasefire is too fragile, at this stage, to justify increasing the de-escalation scenario probability until more detail comes to light.

Based on our assessment of current conditions, we see the most likely outcome as one of protracted escalation.