Please see the below article from Tatton Investment Management discussing the market uncertainty caused by the Iran war, rising oil and gas prices, and the resulting impacts on global markets and inflation expectations, received this morning – 09/03/2026.
Known Unknown returns
The Iran war has plunged markets into uncertainty with spot Brent crude oil above $105 per barrel (and having touched $120 pb) and European natural gas prices now more than doubled. European and Asian stocks have been hit harder than the US, and the dollar has risen – reversing recent trends.
Bonds are also under pressure, with the UK Gilt market especially impacted. UK 10-year yields have risen above 4.75% this morning and traders are now expecting that the Bank of England will raise rates this year rather than cutting.
Perhaps an oddity is that the US dollar is not higher by much, with the DXY index up only about 2% since the start of the conflict. Gold has also barely moved from last week’s levels. Investors may take some heart from this.
Korean stocks went on a wild ride, partly because East Asia is dependent on oil and gas imports, but also because of Korea’s popularity with speculative leveraged traders. Speculative positions are being shaken out – but overall the reaction wasn’t as bad as history would suggest. Maybe markets are desensitised to repeated shocks; the last oil and gas shock in 2022 didn’t destroy the world economy. Many suspect this won’t either.
Markets are no longer ignoring the risks. The ‘known unknowns’ are the war’s length, outcome and collateral damage. Inflation is projected higher everywhere, but economists’ projected growth impacts are mild and variable compared to the market’s fears. The US, a net oil exporter, could benefit while Europe and Asia suffer. That also depends on the end state: will it be regime shift (Venezuela), regime replacement (Iraq) or state collapse (Libya)? We suspect the attacks were opportunistic rather than geostrategic (i.e. starving China of oil) but that doesn’t mean things can’t escalate. Markets are focussed on oil and gas, but all sorts of trade ships through the Persian Gulf.
Ironically, war has distracted markets from previous worries (AI disruption, private credit, tariffs). The global economy has hummed in the background: growth indicators have improved for Europe, North America and Australasia, though China set its lowest growth target since 1991. China (and its trading partners) will at least benefit from the focus on demand. The UK spring statement barely registered, rapidly becoming irrelevant. Investors were ambivalent to economic data before the war, but business surveys were better than expected in the US and Europe. US employment came in weaker on Friday, but not because of AI.
If things calm, markets could easily turn positive, and investors that panic-sell often miss out on the broad recovery that follows.
February asset returns review
Despite negativity around AI, private credit and Iran, global stocks climbed 3.4% in sterling terms last month, while bonds added 1.4%. The US lagged the world at 1.3%, dragged down by a -1.3% return for its tech stocks. Predictions of the ‘SaaS-pocalypse’ (AI obsolescence for software-as-a-service firms) grew and Citrini Research put out an AI doomsday hypothetical think-piece that rocked markets. Nvidia’s stellar results weren’t enough to spur a recovery, and US corporate earnings overall for the current quarter were downgraded. Tighter liquidity hurt private credit firms, prompting Blue Owl to halt some fund redemptions. But private credit woes seemed contained and didn’t spread to public bonds.
AI investment helped Asian shares – particularly Korea and Japan (the latter up 10.8%, also helped by Takaichi’s election victory). China couldn’t take advantage and slipped 2.2%, due to continued economic weakness. The renminbi kept strengthening, though, which is more about status than economics. Emerging market (EM) currencies were strong generally, resulting in a 7.7% gain for EM stocks. We suspect this is part of a long-term adjustment to purchasing power parity (PPP) levels, benefitting EMs.
Bond yields fell thanks to lower inflation – particularly in the UK, helped also by a higher tax take. UK stocks’ 7% return came from better productivity and lower inflation. A similar story was behind Europe’s 4.9% gain (also thanks to tariff relief over Greenland). Commodities jumped 4.5% in anticipation of the Iran war, with oil up 7.3% and gold up 4.3%. The start of war in March has plunged markets into uncertainty and reversed many of February’s improvements (especially on inflation and Asian stocks). But like with markets’ other anxieties, we should remember that the fundamental outlook for global growth is solid.
How inflationary is the oil shock?
The massive spike in oil prices is pushing up inflation expectations. US-Israeli strikes against Iran were telegraphed in advance, but the scale of the war and disruption to traffic through the Strait of Hormuz still surprised markets. Oil futures markets suggest the problems are short-term. Short-term prices are sharply up but prices out to two years have barely moved. The consensus seems to be that the war will last a month or two, followed by a resumption of Iranian oil flow. If that’s right, the long-term oversupply in global oil markets should resume. But that doesn’t mean energy prices are all fine: a $10 per barrel oil premium for a year would still add 0.1 percentage points to global inflation.
Bond yields moved up on expectations of higher inflation and interest rates. But the inflation breakeven rates (the residual between nominal and inflation-linked yields) show that US inflation expectations have barely moved, Europe’s have moved a little and the UK’s have spiked. Maybe that’s about energy security – but the odd one out is Japan. Japanese breakeven rates moved down, despite being car more dependent on oil and gas imports. It’s unclear why UK inflation should be higher than Japan, considering Prime Minister Takaichi’s dovish BoJ appointments. You might think it’s about a long-term demand shock, but again that would presumably apply to the UK too.
We think the disparity is more about bond market inefficiencies than inflation. If that’s right, UK inflation-linked bonds are underpriced relative to Japan – but it’s not always possible to arbitrage these differences. Perhaps markets are underestimating the inflationary impacts, from either a drawn out war or the cumulative impacts of recent inflation shocks. But even if that’s right, it’s hard to justify that being a UK specific problem.
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Marcus Blenkinsop
9th March 2026