Kamal Ghorui
The global markets are in for a phase of enhanced turmoil and uncertainty! The ongoing tensions in the Middle East after US and Israel’s strikes on Iran and Ali Khamenei’s death may have investors running for cover – looking for an asset class that is safer.During the night of February 27–28, the United States and Israel carried out joint aerial strikes on Iran as part of “Operation Epic Fury.” Statements by President Trump openly referring to regime change suggest that the confrontation could evolve into a prolonged campaign rather than remain a limited exchange, say market analysts at Franklin Templeton Institute.What does the situation mean for stock markets, energy markets (oil), gold and other asset classes? Here’s what Franklin Templeton Institute analysts have to say:From a market perspective, the key uncertainty is whether the conflict remains confined to direct military engagement or expands into disruptions affecting energy supplies and logistics networks, which would sustain a higher and more persistent risk premium.At the centre of the ongoing uncertainty from a global market and trade perspective is the Strait of Hormuz. While a complete blockade would carry severe consequences for Iran itself, the country has the capability to disrupt maritime traffic through tactics such as vessel harassment, seizures, drone activity, cyber operations, or the use of proxy forces.
Strait of Hormuz
The most immediate economic impact is expected in energy markets, where crude oil and natural gas prices are likely to move higher, they say. Such actions, feel analysts, will keep geopolitical risk premiums at high levels. In 2024, approximately 20 million barrels per day moved through the Strait of Hormuz, which is around one-fifth of global petroleum liquids consumption. Even a limited interference – which can be caused by delays, rerouting, or isolated seizure – can push prices higher through increased risk perception well before any actual shortages emerge.Liquefied natural gas should not be overlooked in this context. Qatar has the world’s third-largest LNG export capacity, and roughly one-fifth of global LNG shipments pass through the Strait of Hormuz, largely consisting of Qatari exports. As a result, shipping risks in the region affect gas markets as significantly as oil markets.Also Read | US-Israel strikes on Iran: How will India be hit by Strait of Hormuz closure? ExplainedShipping expenses have already begun to rise, with insurance costs acting as a major driver. Insurers have started issuing cancellation notices and revising war-risk premiums for voyages in the Gulf region. Some routes have reportedly seen premium increases of up to about 50%, while earlier periods of tension recorded rises exceeding 60% on important trade corridors. These developments effectively tighten supply conditions even when production levels remain unchanged.The possibility of the conflict spreading across the region is increasing. Franklin Templeton Institute analysts are of the view that across global financial markets, the immediate response to such shocks is usually driven by adjustments in risk perception rather than by underlying economic changes. “The initial market reaction for this type of event would typically see Treasury yields move lower and equities lower—mostly a risk-premium repricing. Impacts on activity/earnings may be delayed and uneven. The US dollar reaction is not guaranteed; gold tends to benefit while bitcoin has been trading like a risk asset (i.e., down with equities), reinforcing that it’s not typically a reliable hedge/diversifier in geopolitical drawdowns,” say Franklin Templeton Institute analysts.However, they note that experience shows markets often come to view geopolitical disruptions as temporary. Initial spikes in risk premiums are frequently followed by the realization that the overall effect on corporate profitability is limited. The duration of the conflict, developments in shipping and insurance costs, and the eventual resolution will be more important than the initial headlines.“We would not yet label this a clean buy-the-dip setup—duration, shipping/insurance mechanics, and the endgame matter more than the first headline,” they say.From an investment perspective, the near-term outlook favours sectors linked to energy markets, as well as companies benefiting from higher shipping and insurance costs, along with defence-related industries, the analysts say. At the same time, caution is warranted toward emerging markets that depend heavily on energy imports and toward cyclical sectors sensitive to fuel and logistics costs, including airlines and certain industrial segments.“For protection, we prefer oil upside/volatility structures and selective gold exposure over broad equity shorts—the path will be driven more by shipping/insurance reality than by the new cycle,” they conclude.
