Focus on safe-haven assets amid rising geopolitical risks
As tensions in the Middle East escalate—particularly due to the possibility of a US military attack on Iran—investors around the world are turning their attention to traditional safe-haven assets. Crude oil and gold are once again in the spotlight, acting as barometers of geopolitical risk and potential hedges against market volatility.
With fears of an armed conflict disrupting oil flows and fueling inflationary pressures, capital is starting to invest in commodities that typically outperform in times of global uncertainty.
Oil: Vulnerable but potentially explosive
Supply concerns are front and center
The Middle East remains the geopolitical center of global oil supply, and Iran plays a key role in this landscape. Any conflict involving Iran raises immediate concerns over the Strait of Hormuz, through which about 20 million barrels of oil pass per day. Even limited military involvement could disrupt these flows, sending crude oil prices soaring.
Already, crude oil prices have begun to reflect the geopolitical risk premium. Analysts warn that if the conflict deepens, Brent crude could cross the $100-a-barrel mark, with energy-importing countries again facing inflation challenges.
Strategic reserves can only do so much
While the US and other IEA members can release strategic petroleum reserves to temporarily stabilize markets, such interventions are usually short-term in their effect. The more prolonged and severe the disruption, the more unstable the global supply balance.
Gold: The classic safe-haven asset back in the spotlight
When uncertainty rises, gold shines. With equity markets volatile and inflation fears rising, investors are once again embracing gold for its:
Store-of-value status
Negative correlation with risk assets
Hedge against currency devaluation and inflation
Spot gold has already surged above $2,300 an ounce, and analysts believe it could hit new highs if tensions in the Middle East continue to escalate or inflation expectations rise further.
Market reactions: broader implications
Equity markets and risk appetite
Equity markets globally have become more fragile, with volatility indices (such as the VIX) moving upwards. Sectors such as defence, energy and mining are expected to benefit in the short term, while aviation, manufacturing and consumer sectors could be hurt by rising input and energy costs.
Currency Markets
The U.S. dollar typically gains in the early stages of geopolitical crises, but prolonged tensions – particularly those that threaten oil flows – could benefit commodity-linked currencies (CAD, AUD) and gold-backed investments.
What should investors do?
Strategic positioning strategies
Investors may consider the following steps:
Increase exposure to energy and commodity ETFs
Hedge portfolios with gold or gold mining stocks
Reduce exposure to sectors vulnerable to oil price shocks (e.g., airlines, logistics)
Hold cash or short-term fixed income to reduce risk
Rising tensions in the Middle East underscore how quickly geopolitics can turn from a background risk to a market-influencing catalyst. With Iran in the crosshairs and the potential for a broader regional conflict, investors are understandably moving toward tangible, globally traded assets such as oil and gold.
While the situation still remains fluid, market participants should prepare for increased volatility and rapidly changing headlines – and adjust portfolios accordingly.
