Client Update - 6th March 2026

Our thoughts this week have focussed on those caught up in the Middle Eastern conflict centred around Iran and Israel, that has since spread out into the surrounding region.

The latest escalation—particularly Iran widening its response beyond Israel and signalling potential disruption to the Strait of Hormuz—has increased concerns about a spike in global energy prices and the risk of a broader economic slowdown. The Strait remains open, but higher insurance costs and the threat of drone attacks mean the likelihood of reduced oil flows remains high.

Looking ahead over the next few weeks, several factors are worth noting:

• Iran’s actions raise the chance that additional countries may intervene to neutralise remaining Iranian military capabilities. With the US and Israel already degrading these assets, any further involvement would accelerate that process.

• Closing the Strait would also cut off around 90% of Iran’s own oil and gas exports. Given the already fragile state of its economy, losing the majority of export revenues could become a problem for the regime.

• China, a major importer of Middle Eastern energy, has a strong incentive to avoid prolonged high prices.

• President Trump, facing mid term elections, will be seeking lower oil prices and a diplomatic outcome he can present as a success.

• The Houthis have shown that low cost drones can disrupt shipping. Given Iran’s size, eliminating this threat through air power alone is unrealistic, meaning the US and its allies will ultimately need an agreement with whoever succeeds the current leadership.

Taken together, these dynamics suggest that all sides have an interest in de escalation over the next month, even if each party is currently trying to strengthen its negotiating position.

Equity markets have followed a familiar de risking pattern. Initially, investors rotated into defensives and energy while selling more risky assets. As the week progressed, selling broadened out to include year to date winners, momentum names, and precious metals, with small and mid caps eventually catching up with large cap declines. The majority of de-risking in the markets has now happened based on the information we have to hand and a recovery from here will depend on news flow and a decline in volatility.

Moves in fixed income/bonds have been more surprising as once more they have not acted as a hedge for equity declines, which is why we have so many other assets in our portfolios to diversify and manage downside risk at moments like this.

While higher energy prices could lift near term inflation, you would imagine central banks are likely to look through this. Higher energy prices combined with weaker growth prospects should ultimately put downward pressure on medium term inflation and long term rates and hopefully interest rates cuts can continue.

The near term impact on the UK should be limited. Higher oil prices will feed through to fuel costs, but the effect is softened by the high share of tax in pump prices. Utility bills are set quarterly, and the April price cap is already fixed at a lower level. Any changes from here would be reflected in July, when gas demand is seasonally low.

It is worth mentioning once more that our thoughts are with those caught up in this conflict and we hope for a quick de-escalation and a return to negotiation. With this thought in mind, please do have a good weekend.