WeekWatch

Markets fall around Iran conflict 
 
With just over a week since the US and Israel began their latest campaign against the Iranian regime, investors are still trying to understand the ramifications. 

How long will the current situation last? What is happening/will happen in the Strait of Hormuz (a vital artery in the global flow of energy)? And what will Iran look like after the dust settles? The answers to questions like these could have huge effects on the global economy and investment markets. 

One area that hasn’t been slow to react is the price of oil. Since the Friday before the attacks, the price of a barrel of oil has jumped from $72.5 to a peak of $119 (at the time of writing, it had since fallen to $104). With Iran targeting energy production facilities in neighbouring countries, a longer conflict may well see the oil price rise further.  
 
Other areas have also been impacted – for example flight prices have come under pressure. Fertilisers, which require large amounts of energy to produce, have also seen prices increase notably. A shock to fertiliser prices is likely to lead to increasing food prices down the line as well.  

All of this will cause inflationary pressures for the global economy, turning the screws on central banks seeking to reduce interest rates. In the UK, for example, we’ve already seen the odds of an interest rate cut being agreed in March fall from 74% before the crisis to 11% by the start of this week. However, the Bank of England is due to make its decision on 19th March so there is still time for events to shift. 

The longer the situation continues, the more these pressures will increase. 

Market reaction 

With uncertainty about the future, and inflationary pressures on the rise, the markets had a challenging week. The FTSE 100 and European STOXX 600 ended the week down 5.74% and 6.11%, respectively. These falls have continued into this week, with the FTSE 100 falling 1.85% in its opening hours of trading, and the STOXX 600 declining by even more.  

However, the US, which is a net energy exporter and therefore more insulated from the above concerns, was less affected by the general Iran issue.  

So called safe haven assets saw changing fortunes over the week. There was an immediate flight for safety to defensive assets such as gold and US treasuries last Monday. But then, as the inflationary implications of the war became clear, people shifted their attention here, causing bond yields to rise. 

Explaining market behaviour, Carlota Estragues Lopez, equity strategist at SJP says: “Despite the escalation of the conflict, market reaction until recently had been relatively contained. Equities softened, bonds sold off, the dollar strengthened and energy prices rose but moves initially looked orderly.  

“Investor behaviour suggested profit taking rather than outright de‑risking, with many drawing comfort from historical experience that geopolitical shocks rarely leave a lasting imprint on asset prices. There has also been a widespread belief that the conflict will be contained, energy supplies will normalise, and that the US remains relatively insulated from a sustained energy shock. 

“However, this calm may be misleading. While oil and gas prices remain below crisis extremes, a prolonged disruption to energy supplies would have significant implications, particularly for Europe, emerging markets and parts of Asia. Markets currently appear priced for a short‑lived shock, not a sustained one, raising the risk that both bonds and equities could come under pressure simultaneously if tensions persist.” 

Asian worries 

Asian markets have so far been more affected by the Iranian conflict than Western markets. The start of this week saw the Nikkei fall over 7% in Japan, with greater falls seen in South Korea. This was on the back of notable falls last week. The Strait of Hormuz carries approximately 90% of all oil for the Far East, making it more vulnerable to disruption. 
 
The timing of the disruption landed just as China was beginning to publicly release details of its 15th five-year plan covering 2026- 2030. While much of the detail is still to emerge, the annual growth target for 2026 has already been released. This is 4.5% – 5%, compared with the 5% achieved in 2025. This will be the lowest level targeted since 1991. 

Lowering the target isn’t necessarily a bad thing. Instead, it could be seen more as recognition the Chinese economy is more mature than it was in the past. The country is already recording historic trade surpluses, its high-tech sectors are now world leading in many fields, and its population has begun to shrink. Put simply, there is less space for it to grow.   

US job target miss 

Although US equity markets were less affected by the Iran situation, they couldn’t escape a disappointing payroll release on Friday. Economists had expected 55,000 non-farm jobs to be added to the US economy in February. Instead, jobs fell by 92,000, according to the US Bureau of Labor Statistics. 

Given the drop in payroll numbers, unsurprisingly, unemployment also ticked up slightly, from 4.3% to 4.4%. 

It’s worth noting that February’s figures were hit by a healthcare strike, which would have reduced the total number. The same strike should mean a boost to March’s numbers, at least. Figures were also affected by prior revisions. 

With investors already nervous about the state of the world, these lower numbers meant US equities finished the week on a downward note. 

Government urged to limit powers under Pension Schemes Bill 

Pensions industry groups are pushing the government to remove its mandating power from the Pension Schemes Bill before it becomes law. 

The Bill, currently in the report stage at the House of Lords, gives the government significant powers to direct how pension schemes invest savers’ money and target different asset classes. 

The government has said it intends to use its reserve power to support the Mansion House Accord. This is a voluntary agreement where the largest workplace pension providers commit to investing at least 10% of their default funds into private markets by 2030, with at least 5% allocated to UK private assets. 

However, in its current form the Bill hands greater powers to the government to direct pension schemes in how they should invest workers’ pensions. 

The Association of British Insurers and Pensions UK have welcomed the broader aims of the Bill. These should simplify workplace pension saving for millions of employees, offer access to a wider range of assets for investors, and lead to better value over the long term. But they have warned the Bill could also create risks which undermine the confidence of pension savers. 

They have proposed amending the Bill to: 

• Cap the percentage of investment that can be mandated, in line with the 10% and 5% targets outlined in the Mansion House Accord 
• Limit the government’s scope to its stated intention and purpose 
• Impose a deadline on any minimum asset allocation. 

If it receives approval in the House of Lords and Royal Assent, the Bill will become law in mid-2026.