What’s happened?

On 28 February, the US and Israel launched a coordinated military strike on Iran, targeting multiple sites including locations in Tehran and killing Supreme Leader Ali Khamenei.

Iran responded with missile and drone attacks on Israel and US positions across the Middle East, and struck neighbouring states’ territories, including the UAE. Regional infrastructure has been disrupted, raising the risk of broader escalation. Qatar has shut down its liquified natural gas production at the world’s largest gas export facility.

How have markets reacted?

As of midday GMT (2 March):

• Oil prices surged, with Brent crude up approximately 8% (having been higher earlier), as markets price in potential supply constraints and heightened geopolitical risk.
• Gas futures jumped the most since the Russian energy crisis in 2022
• Equities have been more muted (approx. values):
  • FTSE 100: -1%
  • Germany’s DAX: -2.2%
  • France’s CAC 40: -1.6%
  • US futures (pre-market): S&P 500 and Dow down ~1.5–1.7%, Nasdaq lower
• Safe-haven flows strengthened:
  • US dollar firmer versus risk currencies
  • Gold higher
• Bond yields edged up (~6 basis points in 10-year UK gilts and US Treasuries)

What’s behind the market response?

It is important to note that markets had already begun pricing a probability of conflict. The US had been amassing forces near Iranian territory for some time, and oil prices were already up nearly 20% year-to-date prior to the strikes.

Today’s price action suggests markets are more concerned about the inflationary implications of higher energy prices than about an immediate growth shock. The rise in bond yields (and fall in prices) indicates investors are pricing inflation risk rather than recession risk.

History supports this measured response. Analysis from Deutsche Bank (going back to 1939) shows that, on average, the S&P 500 has delivered positive returns eight weeks, six months and twelve months after major geopolitical events.

Sarasin’s view

Despite the precision of US and Israeli air power, there is little historical precedent for a regime being toppled by air strikes alone. Sustainable regime change, if it occurs, would ultimately need to come from within.

Iran is a country of 92 million people with entrenched governance structures and no organised domestic opposition positioned to assume control. The authorities maintain significant control over internet infrastructure, limiting coordination of dissent. Even in the event of regime collapse, as Iraq demonstrated, instability could persist and be exploited by competing factions.

The key risk: Energy

For investors, the principal risk is oil and gas.

In recent regional conflicts (Lebanon, Gaza), the human toll was severe, but oil production and transport were largely unaffected. This time is different. Shipping traffic on both sides of the Strait of Hormuz has already been severely disrupted, and insurance cover for vessels operating near Iranian waters is likely being withdrawn or repriced sharply making it a critical chokepoint.

There is also a risk to container trade with Yemen’s Houthi militia threatening to disrupt sea lanes in the Red Sea into the Suez Canal, through which 30% of the world's shipping container volume transits.

However, it is also worth remembering that prior to this week, the global oil market was in material surplus – a surplus expected to widen into mid-2026. The recent ~$6 price increase appears to reflect a geopolitical risk premium rather than an immediate tightening of physical supply.

Duration and potential paths

As things stand, our central scenario assumes:

• Disruptions that remain short-lived
• It is in both parties’ interests to reach a negotiated settlement – the US is running out of ammunition and Iran has little remaining defence capacity

There remains the possibility of a relatively swift negotiated settlement – potentially analogous to Venezuela-style engagement – should remaining Iranian leadership prioritise stability. That could entail a more reformist domestic stance and a less interventionist regional posture.

However, if Tehran calculates that prolonging the conflict serves its strategic interests – particularly by testing political patience in Washington – tanker delays could worsen.

Shipping markets would adapt over time, but at the cost of higher freight rates and diminished effective spare capacity.

Key takeaways for investors

• We have been monitoring developments in the Middle East closely and remain vigilant. We do not intend to make sudden changes to portfolios as events unfold.
• The White House has talked about a military campaign running for ‘weeks.’ There are clear reasons they might not want a more extended timeframe – among them proximity of US mid-term elections (November), the apparent shortage of interceptor missiles and the impact on US consumer confidence from higher oil prices. If this allowed for effective US-Iranian negotiations, then markets would likely look through recent events, as a short-term disruption that required few policy changes.
• If the conflict proves more prolonged, our exposure to gold and high-quality equities, alongside our underweight to credit and duration, positions portfolios relatively defensively.
• As long-term thematic investors, we see Security as becoming an increasingly important priority for governments, industries and companies – a trend accelerated by the reshaping of international relations under the second Trump Administration.
• Within our Market Regimes framework, we continue to see the global order shifting from cooperative globalisation toward competitive, rivalrous great-power politics – a process we describe as Global Fragmentation. This will likely continue to impact supply chains and choke points across the global economy, and contribute to an era of higher and more volatile inflation.

For further insight into our Market Regimes framework and geopolitical developments so far in 2026, watch Guy Monson’s latest Six Minute Strategy.

Important information

This document is intended for retail investors and/or private clients. You should not act or rely on this document but should contact your professional adviser.

This is a marketing communication. Issued by Sarasin & Partners LLP, Juxon House, 100 St Paul’s Churchyard, London, EC4M 8BU. Registered in England and Wales, No. OC329859. Authorised and regulated by the Financial Conduct Authority (FRN: 475111). Website: www.sarasinandpartners.com. Tel: +44 (0)20 7038 7000. Telephone calls may be recorded or monitored in accordance with applicable laws.

This document has been produced for marketing and informational purposes only. It is not a solicitation or an offer to buy or sell any security. The information on which the material is based has been obtained in good faith, from sources that we believe to be reliable, but we have not independently verified such information and we make no representation or warranty, express or implied, as to its accuracy. All expressions of opinion are subject to change without notice.

This document should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this material when taking individual investment and/or strategic decisions.

Capital at risk. The value of investments and any income derived from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor’s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results and may not be repeated. Forecasts are not a reliable indicator of future performance. The index data referenced is the property of third-party providers and has been licensed for use by us. Our Third-Party Suppliers accept no liability in connection with its use. See our website for a full copy of the index disclaimers https://sarasinandpartners.com/important-information/.

Neither Sarasin & Partners LLP nor any other member of the J. Safra Sarasin Holding Ltd group accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The use of this document should not be regarded as a substitute for the exercise by the recipient of their own judgement. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document.

Where the data in this document comes partially from third-party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third-party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third-party data.

© 2026 Sarasin & Partners LLP. All rights reserved. This document is subject to copyright and can only be reproduced or distributed with permission from Sarasin & Partners LLP. Any unauthorised use is strictly prohibited.