Our thoughts on the Israel/Iran conflict and the key associated risks.

Our Perspective

Geopolitical events, like the current tensions between Israel and Iran, often trigger short-term market volatility. Historically, these reactions are brief, and markets typically return to their prior trends. We expect this situation to follow a similar path.

What’s Happening

Hostilities between Israel and Iran have escalated, raising questions about potential impacts on global markets. Below, we highlight the key risks and their possible effects on your investments.

Key Risks to Monitor

1. How Long Will the Conflict Last?

   • A shorter conflict is less likely to disrupt markets significantly, given Israel’s strong air defenses.

   • However, prolonged drone attacks by Iran could strain Israel’s missile defenses, or Israel may act swiftly to avoid vulnerabilities.

2. What Could Retaliation Look Like?

   • Iran has responded with missile strikes, but its weakened allies (e.g., Hamas, Hezbollah) limit its ability to escalate broadly.

   • A larger concern would be Iran targeting regional energy infrastructure, such as Saudi Arabia’s, or disrupting shipping in the Persian Gulf, which could affect oil prices.

3. What’s Driving Oil Prices?

   • Oil prices have risen 30% since early May 2025, partly due to this conflict.

   • If the conflict spreads and disrupts Middle East energy production, prices could climb further. Fortunately, increased supply from OPEC+ and U.S. shale producers could help stabilize prices over time.

4. How Is the World Responding?

   • Global reactions have been limited to diplomatic statements, with other conflicts (e.g., Russia/Ukraine, U.S./China trade) occupying international attention.

5. Will This Affect Trade Negotiations?

   • The July 8, 2025, deadline for tariff and trade talks remains a priority for markets. We believe these discussions are likely to proceed independently of the Middle East situation.

How Markets Are Reacting

• Bitcoin: Experienced a sell-off, behaving more like a high-risk asset than a safe haven.

• Gold: Rallied, reinforcing its role as a traditional safe-haven investment.

• U.S. Dollar & Treasuries: Saw modest demand, though less than expected, possibly due to concerns about rising oil prices fueling inflation.

What Could Happen Next?

• Iran’s Position: With its regional influence weakened, Iran’s ability to cause widespread disruption is limited, which reduces the risk of major market impacts.

• Energy Infrastructure: If Iran’s oil and gas production (3M barrels/day of oil, 275bcm of natural gas) were targeted, it could spike energy prices temporarily and potentially lead to economic unrest in Iran. However, this is not our base case.

• Economic Outlook: A sustained surge in oil prices could increase inflation but is unlikely to trigger a recession. Global energy producers have the capacity to ramp up supply, which should help keep price spikes in check.

Our Advice

We believe this conflict will have a limited long-term impact on markets, consistent with past geopolitical events. The primary risk to watch is a sharp, sustained increase in oil prices. However, with robust global energy supply options, we view a prolonged price spike above $100/barrel as unlikely.

Rising energy costs may lead to temporary inflation pressures, but these should subside. Your portfolio is designed to weather short-term volatility, and we remain focused on your long-term financial goals.

We’re Here for You

If you have questions about how this situation may affect your investments or financial plan, please reach out. We’re committed to keeping you informed and confident in your strategy.