23/10/2026
We wanted to provide an update on recent geopolitical developments and their implications for financial markets,
inflation and investment portfolios.
While events in the Middle East remain highly fluid, financial markets have so far demonstrated a degree of resilience.
Equity markets have recovered strongly from the volatility seen earlier in the year following US military strikes on Iran, with the S&P 500 reaching fresh record highs in October. Investors have taken some comfort from the fact that a broader regional conflict has, for now, been avoided and that global economic growth has remained relatively robust.
However, beneath the market optimism, the underlying geopolitical situation remains unresolved. Oil prices remain elevated, with larger gains seen in the cost of refined products and in oil bought for immediate delivery.
Iran-US tensions remain elevated
Relations between the US and Iran remain at a stalemate, with neither side appearing to be willing to make meaningful concessions. While open hostilities have eased since the initial exchange of strikes, concerns are growing
that the current period may represent a temporary pause rather than a lasting de-escalation.
Markets are increasingly focused on the period following the US midterm elections on 3 November. There are mounting fears that the conclusion of the election campaign could give Washington greater freedom to adopt a more aggressive stance should negotiations continue to fail.
These concerns have been heightened by reports that the US military has developed additional strike options against Iranian targets, including the possible use of the Massive Ordnance Air Blast bomb, commonly known as the "mother of all bombs" or MOAB. This is the largest conventional, non-nuclear weapon in the US arsenal and could be deployed against heavily fortified military, energy or nuclear facilities should President Donald Trump authorise renewed military operations.
Iran has responded with increasingly combative rhetoric of its own, including claims that it is developing new high powered weapons intended to deter further US action. At the same time, reports that the US is withdrawing diplomats and family members from parts of the Middle East have added to concerns that policymakers are preparing contingency plans for a potential deterioration in security conditions.
The situation is further complicated by the activities of Iran-backed Houthi rebels in Yemen. Their continued attacks on Saudi Arabian targets have highlighted the risk that any confrontation between Washington and Tehran could spread beyond the two countries and draw in key regional energy producers.
Ukraine adds to energy market pressures
The situation in Ukraine is also contributing to the uncertain outlook for global energy markets.
Attempts by President Trump to broker an arrangement that would prevent Ukraine and Russia from targeting each other's energy infrastructure have so far failed to produce a durable agreement. As a result, attacks on energy facilities remain a significant risk.
A further complication has been Ukraine's reduced access to Elon Musk's Starlink satellite communications network in certain military operations. Starlink has been a critical component of Ukraine's battlefield communications and drone capabilities throughout the conflict. Restrictions on its use have reflected concerns over escalating the conflict and the role that privately owned technology should play in military operations.
The significance extends beyond the battlefield. Reliable communications are essential for military coordination,
intelligence gathering and infrastructure protection. Any reduction in these capabilities can affect Ukraine's ability to defend critical energy assets and maintain operational effectiveness. However, Donald Trump said on Thursday that the service had now been restored.
Why energy infrastructure matters
Financial markets are particularly sensitive to attacks on oil, gas and electricity infrastructure because the damage can have lasting consequences.
Unlike temporary disruptions caused by weather events or transport bottlenecks, physical damage to production facilities, refineries, export terminals, pipelines or power generation assets can take months or even years to repair.
Replacement equipment is often highly specialised, supply chains can be constrained, and reconstruction efforts may
be delayed by ongoing security concerns.
When productive capacity is removed from the market, global supply becomes tighter. If demand remains stable, prices tend to rise. The larger and more sustained the damage, the greater the pressure on energy prices.
This is why close attention is paid to attacks on infrastructure. A single incident can affect market sentiment for a few days, but a major strike that permanently removes capacity from the market can alter the supply-demand balance for a prolonged period and have a much larger impact on inflation and economic growth.
Implications for inflation and interest rates
The prospect of higher energy prices presents a challenge for central banks.
Energy costs feed directly into household bills and transport costs, while also increasing expenses for manufacturers, logistics providers and many service businesses. These higher costs can eventually be passed on to consumers through higher prices across the wider economy.
As a result, persistent increases in energy prices risk keeping inflation above central bank targets for longer than previously expected. If inflation remains elevated, central banks may be less willing to cut interest rates and could maintain restrictive monetary policy for an extended period.
Bond markets have already begun to reflect this risk. Government bond yields have moved higher as investors adjust their expectations for inflation and interest rates.
Higher bond yields can create headwinds for economic growth. They increase borrowing costs for governments, businesses and households, making it more expensive to finance investment, purchase homes or refinance existing debt. Elevated borrowing costs can slow economic activity and place pressure on corporate profits, particularly in sectors that rely heavily on debt financing.
Portfolio positioning
Given these risks, we continue to adopt a cautious stance towards the geopolitical outlook.
That said, we do not currently believe the situation warrants significant changes to client portfolios. Geopolitical events often generate short-term market volatility, but attempting to make large tactical shifts based on rapidly evolving developments can be counterproductive.
Your portfolio is already diversified across a range of asset classes, sectors and geographic regions in relation to your attitute to risk. This diversification is specifically designed to improve resilience during periods of geopolitical uncertainty and to reduce reliance on the fortunes of any single country, region or market.
We continue to monitor developments closely, including tensions between the US and Iran, the conflict in Ukraine,
developments in global energy markets and the implications for inflation and monetary policy. Should our assessment of the risks change materially, we will review portfolio positioning accordingly.
For now, while the geopolitical backdrop remains challenging, maintaining a disciplined long-term investment approach remains, in our view, the most appropriate course of action.
