Executive summary
 

1. The Iran war has lived up to the reputation of a classic geopolitical event: Few saw it coming.
    
2. I'd argue long-term investors shouldn't necessarily do anything as a result, but understanding the range of outcomes is still a useful exercise.
    
3. In a worst-case scenario, analysis suggests we could see a hit to both inflation and growth should energy infrastructure suffer long-lasting damage.
    
4. Meanwhile, I'd argue asset class performance during the conflict makes some sense, given the risks the market faces in this environment.
    
5. So is the volatility creating opportunity? Maybe on the margin.
    

After Israel and the U.S. began their offensive on February 28, the energy market turned the page to a new chapter, as demonstrated by oil prices in our Chart of the month.

Ranges from $72 to $95 from year 2025 to 2026

Immediately investors transformed from artificial intelligence (AI) experts to geopolitical wizards. However, the reality is that few of us (actually, none of us) know how this will play out. The war itself was a surprise; oil prices wouldn’t have been quite so low — with commentary focused quite so much on the global supply glut — if analysts and experts had seen it coming.

So. What’s a long-term investor to do?

Consider standing still. Geopolitical conflict is just one of the unknowns regularly thrown at markets, and, at least for most U.S. investors, a well-diversified portfolio in the past has generally weathered this kind of storm quite well.

But even for the stay-the-course types, framing expectations can be a valuable exercise. It helps take some of the edge off volatility by providing context and understanding for potential market moves. And, on occasion, it can give investors the information not just to survive the volatility but potentially take advantage of it.

In the current climate, a few contextual questions leap to mind: What is the range of outcomes when it comes to energy prices and the possible resulting impact on the economy? Also, thus far the reaction by certain asset classes doesn’t fit conventional understanding. Why not? And finally, if volatility is opportunity, where could the opportunity be today?

The range of outcomes: Energy prices

Let’s set the stage. About three-fourths of the energy in the U.S. comes from either oil or natural gas. With the U.S. the world’s largest producer of both, most of its needs are met domestically.¹

In the midst of geopolitical conflict, that self-sufficiency offers a measure of protection for the U.S. economy, helping to limit the likelihood of 1970s-style shortages from oil or gas disruptions in the Middle East.

With natural gas still a regional market to some extent, the U.S. economy is also unlikely to see price shocks; in fact, we have seen only a 13% increase in gas prices since February 27 through March 12, while Europe, which sources gas supply from Qatar, among other places, has seen prices skyrocket 53% over the same stretch.²

Oil is a different story. As a global market, price movements overseas also impact U.S. prices, though generally to a slightly more moderate extent.

Consider the price moves on March 9. As fears of oil market disruption spiraled, Brent Crude, which measures the global oil market, peaked at $119.50 midday. West Texas Intermediate (WTI), which measures U.S. crude, similarly spiked, peaking at a similar level. (Both have since fallen, and as of March 12 hover just below $100/barrel.)

Therein lies the inflation concern for the U.S. economy, as high oil prices filter through to the broader economy. But what kind of price levels could we be talking about and for how long? And what does that mean for inflation, growth, or both?

Here’s where the scenario analysis comes in handy. Capital Economics painted three different possible scenarios, the last of which focuses on the most severe disruption.

Based on research from the Federal Reserve Bank of Dallas, while Scenarios 1 and 2 could have an impact on headline inflation, the effects are likely near term in nature and likely to fade; in other words, they wouldn’t necessarily get ingrained in consumer inflation expectations and create a persistent inflationary surge.

If we are looking at the triple-digit prices for the better part of the year (Scenario 3), the inflationary impact is likely to be more severe and more persistent.

It’s hard not to imagine a knock-on growth effect as well for Scenario 3, as the extra cost could impact discretionary spending. That said, there are few caveats to (happily) report:

1. The U.S.’s status as the world’s largest oil producer³ likely lessens the GDP hit.
    
2. Research by Ben Bernanke and others suggest that it is a knee-jerk policy response to raise rates in the wake of the oil shock that causes the most damage to the economy, rather than the oil shock itself.

The market response

Feel better? As long as Scenario 3 exists somewhere in the ether, maybe not. For what it’s worth, Scenario 3 isn’t my base case, or even a high likelihood event (though, like all possibilities on the left side of the distribution, it’s not a zero-probability event either).

That’s what brings us to the matter of asset class performance. After all, we invest in diversified portfolios because we don’t know which of the three scenarios — or infinite scenarios! — will actually play out.

But those keeping a close eye on the day-to-day movements by their diversified portfolios may feel a bit frustrated. U.S. equities have held the line fairly well, slipping only modestly from near record highs over the course of the conflict. But non-U.S. equities have taken a tumble, gold has been a wash, and U.S. Treasuries have slipped a bit. Thank goodness for the good old U.S. dollar, which pushed back against the dollar bears to gain ground against other currencies.

What gives?

It’s a matter of the underlying dynamics of each asset class. Given the self-sufficiency I described earlier, U.S. stocks are far less exposed to energy disruption than non-U.S. markets, meaning the bulk of the fear is felt overseas.

Meanwhile, while U.S. Treasuries have historically acted as a hedge to equity market fears; in this particular case one of the primary fears is inflation. That hits Treasuries where they hurt, as Treasuries are a fixed-income asset, meaning that inflation eats away at their value.

What about gold? Sigh. As regular readers may have picked up (as always, hi Mom!), I find gold a bit irritating. Without cash flows, it’s hard to value, and it’s subject to technicals. Thus, while it historically has behaved as a store of wealth — not a bad thing to have in inflationary times — a growing contingent has instead treated it as if it were a creator of wealth. The resulting buildup has left it vulnerable to sudden stops or reversals, which may have contributed to its mediocrity recently.

And the U.S. dollar? Many expect an inverse relationship between oil and the USD. But that’s changed in recent years. For the millionth time, the U.S. is an energy exporter, and exporters tend to fare better during supply shocks, since they reap the benefits for the higher prices. There’s also the petrodollar consideration — as oil moves higher, buyers need more dollars to buy it — and the safe haven trade; when the world is a scary place, the U.S. dollar is one of the beneficiaries, since it has the heft of the U.S. government behind it.

So. A reason for everything. But have diversified portfolios still delivered, given the inflation fears? I’d argue yes. Global stocks are currently down, but to varying degrees; the U.S. dollar has supported those in U.S. financial markets; and while U.S. Treasuries have disappointed, they haven’t collapsed a la 2022 (we’ve got those higher yields to thank, along with the notion that, for now at least, we are contending with inflation fear and not inflation reality).

Making lemonade: The potential opportunities

Having come of age as an investor during the Global Financial Crisis and managing money through all sorts of exciting times since then, including sovereign debt crises, COVID, and the rip-roaring inflation in the post-pandemic era, I’ve found some of the best opportunities have emerged when fear is climbing and markets are falling.

What I look for: Not just price movement, but valuation movement. In other words, keep an eye not just on the numerator (the price) but the denominator too (the earnings or whatever other fundamental factor is in play).

Take global equities. We’ve seen a sudden sell-off around the world, but in the lens of our analysis, most regions still look expensive, with Europe and Japan only now beginning to come off their higher valuations.

A buying opportunity? I’m not quite sure just yet. But potentially there’s room to rebalance into those markets as a starting point.

Should the sell-off continue and valuations grow more appealing, next steps would include fundamental research and, if still interested, likely a dollar-cost-averaging approach. This helps spread out the risk, offering the choice to add additional exposure at lower prices if the market continues to drop. And of course, all buying would occur within the confines of a broader portfolio so an investor doesn’t suddenly find themself with an absurd amount of exposure to particular opportunities.

Parting thoughts

Geopolitical headlines are among the scariest and almost beg investors to act; to make emotional changes to portfolios based on terrifying developments. But financial wisdom tells us it’s not moments like the current one that should dictate our portfolios, but rather a more sober look at financial goals and the portfolios designed to help get you there. Yes, we can take advantage of opportunities, but we don’t need to tear up our investment strategy and start anew on a day-by-day basis.

Steady as she goes.

Explore previous editions

February 2026 | December 2025 I October 2025 I September 2025