Laura Cooper
Key takeaways
- The second and third-order effects of the Strait of Hormuz crisis are only beginning to materialise
- Markets have been complacent and are normalising to the conflict
- Geopolitical risk has shifted from episodic noise to a persistent feature of the investment landscape; investors who understand that distinction will be better positioned for what comes next
Revisiting the rulebook: Three months on
Three months ago, we argued that geopolitics had shifted from episodic noise to a structural force for markets. At the time, that was a framework. Today, it is evidence.
Bottom line up top
Markets were resilient through 2025 not because the underlying order was intact, but because the consequences of its erosion were still unfolding. Investors were not positioned for a world in which assumptions built over decades – institutional credibility, alliance durability and the limits of political shock – would be tested simultaneously. Political change, we argued, moves faster than market repricing – until it doesn’t. The events of late February may have delivered that inflection point.
From risk premium to real disruption
The Strait of Hormuz crisis did not arrive without warning. Escalating Middle East tensions and the fragility of rules-based international frameworks had been structural risks insufficiently priced by markets. What followed confirmed that assessment with force. The conflict has triggered the largest supply disruption in the history of the global oil market, with flows through the Strait collapsing from around 20 million barrels per day, Gulf producers cutting output by at least 10 million barrels per day and Brent surpassing $100 per barrel for the first time since 2022.
The disruption extends well beyond energy with lasting implications: the Middle East accounts for at least 20% of all seaborne fertiliser exports and the crisis is reshaping supply chains in real time across aluminum, LNG, helium, and petrochemicals. More than 44,000 businesses across 174 economies had at least one shipment exposed as of mid-March. The second and third-order effects are only beginning to materialise.
Three fault lines, now visible
The events of the past three months have clarified three structural breaks:
- First, geopolitical risk has become structural rather than episodic. The U.S. continues to fundamentally reshape its economic and security relationships, pursuing a transactional approach and exposing fractures within traditional alliances. The Hormuz crisis is not an outlier; it is an expression of a broader shift toward boundary-testing.
- Second, Europe was inadequately prepared for a scenario in which U.S. support becomes conditional. Europe is heading toward energy scarcity pricing at a time when its strategic autonomy and rearmament plans are still taking shape.
- Third, the central bank playbook is constrained. The inflation impulse of the energy shock arrives simultaneously with a growth drag: a supply-side shock that conventional tools cannot address. A closure removing close to 20% of global oil supplies is expected to lower global real GDP growth by an annualised 2.9ppts in Q2/2026. Central banks cannot produce oil, and when faced with a stagflationary shock, the tools that address inflation worsen the growth outlook.
The investment implications
The case for geographic diversification, scenario weighting and selectivity within asset classes is stronger today than at the start of the year. In practice, we favour floating rate over fixed credit exposures, including senior loans and pockets of private credit over investment grade duration; energy and upstream assets across equities; hard assets and real return profiles; and we remain constructive, albeit selective, on EM sovereigns where strong external balances offer both diversification and carry where traditional haven assumptions are being tested.
An important portfolio consideration is also what markets are pricing, with complacency increasingly evident. Markets are normalising to the conflict, pricing a base case of partial resolution and gradual resumption of flows. Tail risks from a prolonged closure extending into Q3, further attacks on Gulf energy infrastructure, or escalation that draws in additional regional actors remain underpriced. Outcomes aren’t symmetric, and investors positioned for the base case are implicitly short optionality when it is most valuable.
Bottom line
The Strait of Hormuz crisis is not an aberration from the new geopolitical order – it is an expression of it. Markets are transitioning from a world where geopolitical risk was something to price at the margin, to one where it shapes outcomes. Investors who understand that distinction will be better positioned for what comes next.
By Laura Cooper, Global Investment Strategist and Head of Macro Credit