Global markets have moved swiftly to look to guard against uncertainty caused by the escalation of the conflict in the Middle East, with investors told to hold their nerves.

As Iran announced the closure of the Strait of Hormuz and launched a missile attack on Saudi Arabia’s biggest oil refinery,  Emma Wall, chief Investment strategist, at Hargreaves Lansdown said the conflict had the potential to redefine global trade in the longer term.

“Events in the Middle East over the weekend – the US-Israel strikes on Iran, and subsequent retaliations across the region – have added uncertainty, and volatility, to an already choppy market,” she explained. “Global equities, buffeted by AI disruption fears and ever-changing tariff policy over recent months, are now digesting the likelihood of significantly higher oil prices, supply chain concerns, and the potential for subsequent higher inflation.

“Investors have reacted by turning ‘risk-off’, buying in to the perceived safe havens of gold, the US dollar and the Swiss franc. Initial equity market reaction was mixed. Middle Eastern markets trading on Sunday fell – but only by 2-4% as key oil producers listed in the region provided a counter to wider losses.

“Yesterday, Asian equity markets fell 1.6%, with European and US futures down. Europe markets indicate an open of down 1.7% and S&P 500 futures are 1% down. Investors globally are broadly selling equities to fund the risk-off pivot, but the energy sector looks set to gain. US treasury bonds and UK gilts are also expected to benefit.”

Wall explained oil prices have unsurprisingly rallied, up as much as 13% through Asian trading. Brent crude opened the week at $82 – up $10 on Friday’s price.

Iran is only responsible for around 5% of global oil supply, but the UAE, which has come under retaliatory fire because of its US military bases, is the fifth largest global exporter. Further pressures were added on Sunday as Iran targeted the Strait of Hormuz through which ships carrying around a fifth of the world’s oil and gas pass daily. In response, tankers halted movement to protect their cargo and have yet to resume normal activity.

“There are echoes of the 1979 Iranian revolution, which not only caused a significant shift in geopolitics and re-configuration of international allies and trade partners, but also resulted in an oil crisis which saw the price of crude double over the course of a year, causing higher global inflation and slower economic growth,” Wall cautioned. “The dynamics of oil and gas trade have evolved since then, but it will be this longer-term stagflation risk that equity and bond markets are most worried about.

“There are a number of factors which will determine the economic impact of elevated oil prices on a country-by-country basis. The first is the amount of reserves nations have accrued before this disruption. China is the world’s largest importer of oil so any move in the oil price has a read-through to economic growth. However, the regime is hyperaware of its dependency on producer nations and has subsequently built up significant stores which will provide some buffer to the current disruption, protecting the nation from potential inflation shocks in the short term. The world’s number one oil exporter, Saudi Arabia, also upped its stores outside of the Gulf in recent weeks.”

She continued: “The second factor is supply dependency. Russia invading Ukraine brought the benefits of energy autonomy into focus – and nations such as the US have ramped up production in recent years to become the second largest oil exporter in the world. At the time of the last Iranian oil crisis, the US was a net importer of oil. Europe and Japan are most sensitive today, relying on the Middle East for their energy. Major oil producer Russia is subject to sanctions from many western economies, but China and India are still buying.

“Finally supply routes are key – the Hormuz Strait may be on pause, but the Red Sea oil pipelines in Saudi and Egypt avoid both Hormuz and the Suez Canal, ability for producers to use these routes is key to minimising global impact.

“Crucially, while oil prices may be higher now, consensus is that this disruption is transitory – and so too will the impact be on wider asset classes. In the event of an effective transition of power – and end to the fighting – oil prices are expected to return to $65 a barrel within weeks, and therefore the likelihood of a global growth shock is minimal. However, if in-fighting erupts and conflict drags on expect equity markets to respond badly.”

Wall concluded: “The most sensible thing for most investors to do is nothing. Heightened market volatility was a feature of 2025, and our house view was that unpredictable markets were likely to continue this year.

“In our 2026 outlook we called out ongoing tension in the Middle East, the Russia-Ukraine war and the US Mid Term elections as potential inflection points for asset prices. The events of the weekend are deeply troubling from a humanitarian point of view, and present global leaders with difficult choices to make. But they are sadly not isolated incidents – global markets continue to trade through wars, pandemics and natural disasters.”