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Just a few months after attacks on Iranian nuclear and military facilities, the US and Israel have launched renewed strikes. Iran’s Supreme Leader Ali Khamenei, along with several senior members of the Revolutionary Guard and the military, were killed. Iran responded with attacks on US allies and civilian infrastructure in the Gulf region. As a result, shipping through the Strait of Hormuz has nearly come to a standstill. More than 20% of global oil and gas trade flows through this route. If the disruption lasts longer, the oil price could trend above USD 100 per barrel. Iran’s oil production is also likely to be interrupted. That said, the country supplies only about 2 million barrels of crude oil per day—a relatively small share of global oil output, mainly to China.

The main channel through which the conflict could affect global financial markets is the oil price. A scenario with serious supply interruptions would be particularly critical. If the oil price stays at or above USD 100 per barrel for weeks or even months, markets are likely to price in lower growth prospects and higher inflation expectations. Moderate and temporary price increases, however, would have only limited macroeconomic effects.

Other transmission channels appear less significant. We consider a sustained tightening of financing conditions unlikely, as rising risk premiums would be partially offset by falling interest rates. A stronger US dollar is also unlikely to become a major burden, especially given the pronounced dollar depreciation in recent quarters. We believe a scenario in which a strong destabilization of Iran leads to a new refugee crisis is conceivable, with potential medium- to long-term political consequences for Europe. The decisive factor would be whether there is a regime change and how willing any new leadership would be to cooperate with the US.

Naturally, it is difficult to estimate how long the conflict will last and how severely energy exports from the region will be affected. However, two points are clear: First, persistently higher oil prices would be politically problematic for US President Trump, especially with the midterm elections coming up in the fall. This suggests that US forces could end their attacks sooner rather than later. Second, Iran has only limited military means to counter the combined military forces of the US and Israel. It is therefore quite possible that the current retaliatory measures are primarily intended as a show of power for domestic political purposes. While we cannot rule out the possibility of Iran also targeting the infrastructure of neighboring countries in the medium term, its capacities are likely to diminish the longer the conflict lasts. At a certain point, markets could therefore begin to price in a normalization of export volumes. In the short term, the conflict may have a stagflationary effect, but a prolonged oil crisis like in the 1970s appears unlikely to us at this stage.

Experience also shows that markets often overreact to geopolitical shocks but stabilize quickly. In the first Gulf War, the oil price fell at the start of the war after a sharp rise beforehand. Similarly, after the attacks on the Abqaiq and Khurais refineries in Saudi Arabia in 2019, the oil price recovered quickly once it became clear that the production outages would only be temporary. Applied to the current situation, this means that escalation fears are likely to increase risk premiums only in the short term, while the real economic damage should remain limited. We therefore continue to see the risk of a major market correction as moderate, even if there could be short-term pressure.

The same applies to the Swiss franc, which once again lived up to its role as a safe haven. Its appreciation against the euro and the US dollar should normalize as uncertainty fades. At the same time, the Swiss National Bank reminded markets that it could intervene in the event of a rapid and strong appreciation of the franc.

In conclusion, the risk of a major market correction remains moderate, even if the conflict should last longer. Investors should continue to focus on medium-term drivers, such as robust earnings growth and monetary and fiscal policy impulses, but also on known risks like the disruptive impact of AI on companies and industries. For investors underallocated to equities with a medium- to long-term investment horizon, the current market uncertainty may offer an opportunity to increase exposure. Tactically, stocks in Europe and Asia appear particularly attractive to us. In addition, the crisis once again shows that alternative investments—especially gold—can help support a portfolio during times of crisis.