The war in Iran and the risk that it could lead to a wider regional conflict have roiled global financial markets. Oil and European gas prices have spiked while equity markets have seen sharp declines.
The prevailing fear is that the world might be about to experience an energy price shock as violent as the one seen in the aftermath of Russia’s invasion of Ukraine.
Although this can’t be completely ruled out, it is not our base case scenario. It is rare for geopolitical crises to inflict lasting damage on growth and financial markets; the only major exception was the oil crisis during the 1970s, and there is little to suggest a repeat of that.
The global economy is much less oil intensive than it was then; the US is a net exporter of petroleum, while global supplies of crude are ample and reserve buffers remain reasonable.
So even if the price of crude rises 30%, it would shave only about 0.2 percentage points from global GDP growth and lift inflation by little more than one percentage point.
But oil is not the only factor at play. Investor sentiment is another important consideration, and here markets look more vulnerable.
Equities and other riskier assets were in a fragile equilibrium in the weeks leading up to the US-Israeli military strike on Iran. Markets were caught between improving macroeconomic fundamentals on the one hand and a loss of confidence in the outlook for US technology stocks on the other. For this reason, stocks could prove more volatile as the war rages than they otherwise would have been.
To better understand how events could unfold, we have conducted an analysis that explores various conflict scenarios.
At one end of the scale, the war ends quickly, with Iran militarily weakened but with its current regime remaining in place. Under the most extreme scenario, we imagine what might happen in the unlikely event that the war spreads beyond the region.
Scenario
| Summary of market impact | Impact vectors | Medium-term implications | Closest historical template | Time horizon | Oil Brent, USD/bbl | Gold, | USD, % | US 10-yr yield, bps | Global equities, |
|---|---|---|---|---|---|---|---|---|---|---|
Current: |
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| Price action so far*:
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+17 | 0% | +1% | +5bps | -2% | ||||||
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| Forecast price action from pre-attack levels: | ||||
Managed regime change in Iran | Initially a pronounced spike in market volatility, but calm restored soon after |
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| ~2-4 weeks | +10 | +5% | +2% | 0 | -5% |
Serious regional escalation | Significant global sentiment shock, pronounced sell off in equity markets World recession avoided |
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| ~1-2 months | +30 | +20% | +5% | -15 | -10% |
Multi-theatre global conflict | Much of the world shifts to a war footing Severe impact on financial markets |
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| ~6-12 | +70 | +100% | +20% | -200 | -50% |
Source: Pictet Asset Management, LSEG. *Price change for period 25.02.2026 to 04.03.2026.
Scenarios to consider
Equity market declines should remain modest in most scenarios unless the conflict broadens materially, for example to include Russia and China.
Bonds may initially struggle as higher oil prices keep inflation elevated. But a more severe escalation of the war would likely cause a fall in consumer spending and business confidence, which would fuel expectations for interest rate cuts and cause bond yields to fall.
Gold is likely to be a key beneficiary, acting as a high‑liquidity store of value and a strategic hedge against inflation over time, even if it remains vulnerable to bouts of volatility. The US dollar should also appreciate initially on safe‑haven demand, supported by the US’s position as a major energy producer. It would then resume a gradual decline if the conflict comes to a swift end.
Changes in our positioning: hedging against declines, neutral on equities
In the days since the US-Israeli attack on February 28, our multi asset investment teams have scaled back their holdings of riskier assets, cutting both equities and financial stocks to neutral from overweight. They have also upgraded cash to overweight and put in place hedges to insulate portfolios from any further market falls via put options in both stocks and corporate bonds.
Our portfolios have also increased their weighting in the US dollar – whose function as a safe harbour should come to the fore, particularly in light of the weakness of the Japanese yen, another currency typically prized for its defensive qualities. If the conflict continues for some time, the dollar has room to appreciate. We would expect the Swiss franc to gain too, especially as the Swiss National Bank would likely support such appreciation to counter inflationary pressures arising from higher energy prices.
Our overweight in the Swiss franc and our high‑conviction overweight stance in gold form the main bulwark of the portfolio.
We also highlight the early resilience of emerging markets outside of the tech-heavy North Asia. We have consistently argued that emerging equities are not merely a leveraged play on the global risk cycle, but a strategic allocation underpinned by strong domestic growth fundamentals.
Pictet Asset Management. Data as at 09.03.2026.
