Market Brief

As the situation involving Iran develops, investors may be feeling anxious about their portfolios.  Without diminishing the human tragedy of conflict, the headlines regarding oil, gas, and inflation can trigger reactive investment decisions.

The following is an overview of the economic implications and the historical context of war.

Short/Medium Term:

A protracted conflict in the region creates two potential headwinds:

• Energy driven inflation: Potential disruptions to the Strait of Hormuz threatens to sustain oil prices over $100+ per barrel for an extended period. This may impact economic growth and lead to a temporary spike in headline inflation (projected between +80 to +100 bps in major economies – see below).
• Monetary policy lag: Persistent energy costs may cause central banks to maintain interest rates ‘higher for longer’, with implications for both fixed income and equity markets.

Europe and Japan more vulnerable than US to protracted high oil prices:

Sources: Vanguard calculations, based on Oxford Economics and US Federal Reserve data, as at 9 March 2026.

Long Term:

It is important to remember that, historically, equity markets are remarkably resilient to geopolitical strife.  Initial market shocks are rarely a forecast of long term performance.

Data from previous major conflicts (illustrated below) shows that 10 year stock market returns following the outbreak of war have remained overwhelmingly positive.  Markets eventually pivot back to fundamental drivers, such as corporate earnings and economic growth, once the initial uncertainty is priced in.

As ever we consider successful long term investment to be about time in the market rather than timing the market.

10 Year Stock Market Returns Following Wars