Global markets are bracing for potentially higher oil prices following joint US and Israeli strikes on Iran and retaliatory attacks across the Middle East. Adam Hetts, global head of multi-asset at Janus Henderson, notes the escalating conflict has heightened the risk of broader regional instability. Janus Henderson is a global asset manager offering a range of financial products and services to institutions, intermediaries, and individual investors.
The immediate focus for investors is crude oil, given Iran’s significant role in global supply. Iran accounts for approximately 3 to 4 per cent of global oil supply, with roughly 20 per cent of the world’s oil passing through the Strait of Hormuz, where traffic has been effectively halted. Hetts suggests current oil prices reflect expectations of a limited and short-lived conflict.
Hetts outlined potential price thresholds. A move to $US80 per barrel would mirror the market reaction to an Iranian flare-up last June, while $US90 would be comparable to tensions in April 2024. A sustained push above $US100, however, would indicate a more protracted shock, similar to the impact of Russia’s invasion of Ukraine in early 2022.
Hetts cautioned that persistent uncertainty could pressure broader risk assets, potentially triggering a rally in safe-haven government bonds and currencies. He also warned a renewed, oil-driven inflation scare could reduce the likelihood of US Federal Reserve rate cuts later this year. While this is not his base case, Hetts urges investors to remain diversified and maintain a long-term perspective rather than reacting to short-term market volatility.
