Markets are still waiting to be called, with bonds offering more cushion than before and investors rotating away from tech rather than heading for the exits.
Article last updated 29 May 2026.
The missile and drone war between the US, Israel and Iran underlines how tightly geopolitics and commodity markets are intertwined. While predicting political outcomes is a fool’s errand, the market response reinforces a long standing investment reality: that economic growth is just energy with a fancy mask on. Despite years of political rhetoric and ambitious decarbonisation targets, oil and gas remain central to the global economy. Beyond transport and heating, it’s embedded in supply chains that support modern living, from electronics and food distribution to industrial power and heating our homes.
While spikes in oil and gas prices will initially feel inflationary – and may well cause central bankers to pause or reverse recent interest rate cuts – they are effectively a tax on growth, so are typically deflationary in the fullness of time as demand weakens. Much household energy spending is non-discretionary, meaning pressure is felt elsewhere in consumer budgets. Interestingly, consumer staples did not offer the protection some investors might have expected during recent equity market turbulence, reinforcing the need to question conventional assumptions about defensiveness.
The war has also exposed the UK and Europe’s vulnerability, both militarily and in energy security. Years of complacency have left the region reliant on external support that can no longer be taken for granted. This should act as a catalyst for renewed investment in defence and nuclear power, not only to improve resilience but also to support longer‑term growth. While the political challenges are substantial, particularly given stretched public finances, the direction of travel now looks unavoidable.
We think this conflict accelerates the long-term shifts in global alignment that have been playing out over recent years, particularly in Asia. As the US becomes a less reliable partner, some countries may deepen economic and technological ties with China, despite the obvious risks. This reinforces the case for greater geographic diversification and a more balanced exposure between the US and Asia within portfolios.
