An investor’s guide to navigating the conflict

Investors face a dilemma: The longer the Strait of Hormuz remains effectively closed, the tighter energy markets are going to get, and the higher energy prices will go. The higher prices go and the longer they stay high, the more negative the global economic impact. And with a complex situation on the ground, the longer the conflict lasts, the harder a swift resolution becomes. In a bear-case scenario for equity markets, oil prices stay high enough for long enough to trigger second-round inflationary effects that lead to central bank rate hikes.

At the same time, provided critical oil infrastructure is not actually destroyed, energy prices should fall relatively quickly once the Strait reopens, which could come about through a military or a political solution. Since equity markets are forward-looking, we would expect them to rebound relatively swiftly to pre-conflict levels once shipping through the Strait looks set to resume. So, reducing portfolio risk likely entails an opportunity cost.

Markets thus far have been relatively calm, with global equities still trading within 5% of all-time highs and 12-month forward Brent crude prices still at USD 72.50/bbl (versus spot prices of around USD 91/bbl at the time of writing). Yet, rising volatility shows us investors are growing increasingly uneasy about the risk that oil supply disruptions could prove longer lasting.

What’s the right plan of action from here? After what had been a strong start to the year, we encouraged investors to use market moves to rebalance, diversify, and hedge. For investors who have followed that advice, are well-diversified, and who have the temperament and the ability to stay invested for the long term, our recommended strategy is simple: Stay invested. We do not think that this crisis will have a meaningful impact on where markets will trade over the longer run.

But for investors looking to navigate the crisis more tactically, or for those looking to more actively manage risks, we believe that defining a plan of action in advance is helpful. Risk management is never easy in a fluid situation that could credibly reverse “tomorrow.” Even as evident risks rise, it can be tempting to repeatedly wait “one more day” before taking action in portfolios.

We believe investors should build a plan to progressively reduce portfolio risks the longer the crisis lasts. This means 1) adding hedges, including to equities and to cyclical currency positions; 2) building diversification, with quality bonds, gold, and commodity exposure; and 3) cutting cyclical exposures (or allowing exposure to reduce naturally by not actively rebalancing).

In this note, we map out our expectations for markets in the months ahead, should the crisis last for longer.

Source: UBS, as of 9 March 2026

Today: Expectations vs. reality
While President Donald Trump has said that the conflict “is very complete, pretty much,” we believe investors should be wary about simply assuming that Trump can strike a deal and that energy flows will resume soon. While an end to hostilities and the resumption of flows by the end of March is still the most likely scenario, in our view, with the S&P 500 trading just 1.6% lower than pre-conflict levels, optimism about the potential impact of G7 oil reserves releases, and oil futures pricing a high probability that supply pressures will ease, we see some risk of market disappointment.

Finding a mutually acceptable leader may be hard. It is now clear that, unlike in Venezuela, the US has not managed to quickly identify a mutually acceptable Iranian leadership successor, and finding one is likely to be challenging. We do not think an Iranian Revolutionary Guard (IRG)-backed leader will be acceptable for the US and vice versa.

Ships may remain unwilling to pass through the Strait. The US has offered to provide insurance to pay for the replacement of a ship lost to a missile or drone. Yet, shipping has not resumed materially. Shipowners say their insurance is not the only issue. With a US navy escort potentially in place in a matter of weeks, ships are more inclined to wait for what will be the highest day rates in years when the Strait reopens.

Iran retains leverage. While it is true that President Trump often likes to make maximalist demands but rapidly strike a deal short of those demands, this strategy has not always been successful when adversaries have levers and are willing to pull them. In this case, the unique choke-point of the Strait of Hormuz and the amount of energy infrastructure in the region mean that as long as Iran seeks to threaten, US gasoline prices at the pump will likely stay high. Even if Trump wants to “declare victory,” Iran could decide to continue to drive up oil prices.

So, while we have no special knowledge about how long it will take the US to achieve its stated goals, or when it may feel it has achieved them, we do think that Trump cannot fully “declare victory” until we see either a change in the behavior of the Iranian leadership or ships passing safely through the Strait.

Next month: Convoy go or no go?
Assuming no "deal" is struck in the coming week or two, by around the end of March, we believe we should have some evidence of how effective a proposed US naval “escort” of shipping through the Strait is likely to prove. In particular, we will be watching for: 1) how large a convoy the US military is logistically able to construct, 2) the number of shipowners and captains willing to join it, and 3) whether the convoy is successful in navigating the Strait undamaged. We believe it is possible that US convoys could bring shipping traffic back to around 50% of pre-conflict levels.

By then, we may also have additional evidence about how sustainable the current Iranian regime may be, including: whether diplomatic channels between Iran's leader and the US and Israel have opened, whether the US and Israel are actively seeking an alternative leadership candidate, and the acceptability of different leadership candidates to different groups within Iran.

Further complications, including additional parties entering the conflict, could also lead markets to perceive a higher threat level to shipping for longer.

We focus on forward oil prices as our best indicator for judging the overall probability of shipping lanes fully reopening over our tactical investment horizon. We do this because even if there are clear signs of progress in reopening the Strait, it is possible that spot oil prices remain very elevated due to the current disruption.

Next two to three months: Signs of mutually acceptable leadership?
If no political solution is found over a two- to three-month time horizon, we believe the US and Israeli military will have achieved most of what they are going to be able to achieve using air power alone. If by this time US navy escorts are not able to restore shipping levels to 100% of pre-crisis levels, internal stability within Iran will be an important indicator of the medium-term residual threat to shipping through the Strait as well as the potential for shipping levels to return to 100%.

Relative ineffectiveness of the convoy or instability within Iran would likely mean forward oil contracts start to trade at high prices, pricing a higher likelihood of the conflict lasting for longer. In contrast, high effectiveness of the convoy or clear signs of effective and mutually acceptable leadership emerging within Iran would likely mean lower forward oil prices.

Next three to six months: Central bank and inflation pass-through?
If the situation on the ground in Iran remains unstable on a three- to six-month horizon, it likely means that: US/Israeli actions are proving ineffective at driving stability, no clear leadership has emerged or competing interest groups within Iran are leading to an unstable domestic situation, and shipping not under US convoy remains under threat.

At this time, if shipping through the Strait remains constrained and oil spot prices remain high, then the economic effect will also start to feed through into inflation, consumer and business confidence, and growth data. We estimate that if spot oil prices remain above USD 90/bbl for more than six months, US inflation would rise by 60bps in 2026. If spot oil prices are above USD 120/bbl for more than six months, US inflation would rise by 150bps.

While central banks would typically “look through” one-off energy price shocks, it is possible that the market will begin to fear interest rate hikes should central banks fear a repeat of the 2022 episode that included rising consumer and business inflation expectations.

How to invest
Risk management is never easy in a fluid situation that could credibly reverse “tomorrow.” Even as evident risks rise, it is tempting to wait “just one more day” before reducing risk in portfolios. While everyone wants to trade perfectly, this ambition more often leads to inaction. A humbler goal would be to try avoiding a worst-case personal investing scenario of saying “everything is fine” on Monday, panic selling on Tuesday, and seeing the situation reverse on Wednesday.

To help avoid this, and manage risks in the months ahead, we recommend investors start with a simple plan based on the question, “if the conflict persists for six months and oil remains elevated, what would I want my portfolio to look like?” Then work backward to space out the required moves between today’s portfolio and that end-state portfolio into regular intervals, also accounting for the potential effect of market moves. While far from a perfect plan, it is a way to gain some control.

Our conclusion from doing this exercise is that, as long as the crisis persists, investors should focus on taking action in three areas over the coming months:

• Adding hedges—including against equity market declines, or positioning for potential gains for perceived “safe-haven” currencies (including the USD) and commodities;
• Building diversification—including by adding quality bonds, gold, and broad commodity exposure;
• Cutting cyclical exposures in equities or more growth-sensitive parts of global credit (or allowing exposure to reduce naturally by not actively rebalancing).
  We have been following this roadmap with our own positioning as the crisis has unfolded, and will continue to do so for as long as it persists. We do this in the knowledge that the last time we reduce portfolio risk will probably come just before a rebound, but in the confidence that we will be taking proactive steps to manage some of the worst-case risks we might face.

Stocks:Don’t take bold views. We do not believe equity investors should “run for the hills,” nor should they be reflexively “buying the dip.” Trading geopolitics has historically been a recipe for failure, and staying diversified, staying disciplined, and staying the course is the right course of action, in our view.

We believe the most likely single scenario is that the crisis will be resolved in a matter of weeks. History tells us that the median length of a geopolitical drawdown in the S&P 500 is 16 days. In our base case, markets will be higher by the end of 2026. At the same time, not every geopolitical crisis has been resolved in a matter of weeks. And there are various paths by which this particular crisis could become protracted and economically costly. Now is not the time to be bold.

Diversify concentrated positions. Investors should consider using the current period of market focus on Iran to diversify concentrated exposures and broaden equity portfolios. Once the crisis resolves, we think the market will quickly revert to some of the issues that were in focus prior to the strikes on Iran, including fears about AI competition. One of our key messages to equity investors this year has been to “broaden” exposures, in part to mitigate sector and region-specific risks, and we believe that remains key.

Bonds:Building quality bond exposure. Government bond markets have sold off since strikes on Iran began, on a combination of fears about higher inflation, potentially higher interest rates, and concern about the fiscal consequences of potential energy subsidies for consumers and higher defense spending. While yields are likely to remain sensitive to these fears, we continue to believe that quality bonds have an important role to play in diversifying portfolios, and we would expect yields to eventually fall if markets begin to price a recession. We focus on medium-duration bonds, given potential fiscal risks for longer-dated debt.

Currencies:Short-term dollar strength. We continue to expect the US dollar to weaken over the medium term. But while the conflict persists and oil prices remain elevated, we expect the US dollar to strengthen relative to the euro. Aside from the dollar’s traditional role as a perceived portfolio “safe haven,” the US’s status as an energy exporter both partially insulates it from direct economic risks from higher energy prices and improves its terms of trade relative to importing regions. This makes positioning for near-term dollar strength a potential way for investors to hedge portfolios against the risk of a longer-lasting crisis.

Commodities:Gold will be back. Thus far, gold prices have not responded positively to the crisis, with a combination of a stronger dollar, potential interest rate hikes, and investor profit-taking leading to weaker-than-expected gold performance during a period of geopolitical upheaval. We expect gold to resume its function as a geopolitical hedge soon. Historically, gold has provided insulation from the monetary and financial effects that wars can cause. In addition, we expect lower real yields and fears over rising global debt levels to underpin continued gold demand from both central banks and investors, and project prices to rise to USD 6,200/oz by June 2026.

Broad commodity exposure. Although we would expect short-term oil prices to fall in the event of a resolution to the conflict, we believe that broad commodities remain appealing as a source of growth and diversification for portfolios. Investors with a long-term outlook may wish to capitalize on any downturns in industrial metals to strategically increase their allocations, particularly in copper given its persistent demand growth and ongoing supply constraints. We continue to believe that implementing a more active investment strategy, as opposed to passive exposure, can facilitate effective navigation of the current divergence between the energy segment and other areas.