A new war breaking out in Iran is highlighting the effects of a new era of geopolitics as a recurring macro driver for institutional investors, said Monica Defend, head of the Amundi Investment Institute, in an emailed statement to Benefits Canada.
“We are moving further into a ‘controlled disorder’ environment, where shocks generate rotation and dispersion rather than a uniform market direction.”
War broke out last Saturday with the killing of Iranian Supreme Leader Ayatollah Ali Khamenei in a joint strike by Israel and the U.S. The continued attacks have resulted in casualties on both sides as Iran struck Israel and other Arab states looking for U.S. military targets, according to media reports.
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U.S. President Donald Trump identified Iran’s naval and missile capabilities as primary targets alongside wanting to stop the country from securing nuclear weapon capabilities. The unilateral decision by the U.S. has caused mixed reactions on the world stage and opened the door to economic instability with shipping delays and increased oil prices.
“As long as oil flows continue, this remains a volatility event, not a systemic one — but it confirms that geopolitics is now structurally embedded in the investment cycle,” said Defend. “In the short term, it feeds inflation risk, [U.S. dollar] strength and asset-class dispersion. Energy volatility, inflation uncertainty and regional dispersion are returning as defining market features.”
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She identified emerging market assets and oil importers as the most vulnerable investments in an asset breakdown.
A statement from Ninety One said a disruption to the Strait of Hormuz, a transit point for 20 per cent of global oil supplies, would make the conflict relevant to households and businesses globally.
“If Iran were to, for example, use drones to close shipping lanes, that would be a major escalation. It would also be met with massive retaliation, not to mention the fact that Iran’s own oil exports rely on the Strait.”
The average price for a gallon of gasoline has already jumped 11 cents overnight in the U.S. this week, reaching a $3.11 per gallon price point, according to a report from the Associated Press.
In addition to price increases, disruption to the global oil supply chain could cause stagflation effects with inflation rising and slower growth, Ninety One said.
“A 30-per-cent real increase in oil prices would, on those estimates, lift headline inflation by around one percentage point over a year while reducing output growth by roughly 0.13 percentage points, with the uncertainty channel amplifying these effects further.”