The war in Iran has caused a historic disruption of energy supplies through the Strait of Hormuz, triggering a sharp spike in oil & gas prices. Although the global economy is less vulnerable to energy price spikes than in past decades due to lower energy intensity, import-dependent regions such as Europe and Asia remain particularly exposed. This energy shock is expected to temporarily drive headline inflation higher, but market expectations remain relatively well-anchored by the belief that inflationary pressures will ease once the conflict de-escalates and supply routes stabilize. These rising inflation expectations have already pushed interest rate forecasts and bond yields higher. In the wake of these developments, commodities have delivered strong returns, whereas European and Asian equities have struggled and high-quality bonds have underwhelmed as a diversifier.

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