After the US formally entered the Israel-Iran conflict over the weekend, wealth managers discuss the impact on oil prices and asset allocation.

US President Donald Trump confirmed a US airstrike on three major Iranian nuclear sites over the weekend, causing oil prices to climb on Monday to their highest level since January.

The strike marks a shift in the geopolitical stakes: the world’s largest military power has now directly joined the conflict. The US’ involvement in the conflict is fuelling concerns of escalation.

Oil prices jumped by as much as 4 per cent in early trading on concerns that the US strikes on Iran could lead to supply disruptions, particularly if Iran follows through on threats to block the Strait of Hormuz.

However, although oil prices rose on the news, Norbert Rücker, head of economics and next generation research at Swiss private bank Julius Baer, believes that the usual playbook of geopolitics applies, with fears causing a temporary price spike. “Ample storage and plentiful spare capacity bolster oil’s supply resilience. We see prices supported in the near term by a risk premium and maintain a neutral view. The market mood has shifted into bullish territory, which should eventually confirm the price spike’s temporary nature,” Rücker said in a note. “Oil prices remain the conflict’s fever curve, and whether the soft shock will turn into a mild shock will become clear over the coming days.”

Rücker defines a soft shock as oil prices bouncing towards $80, and a mild shock as oil prices spiking beyond $85 – both of which lack significant economic impact. “Various elements seem to determine the intensity and duration of the oil market’s reaction, such as the exhaustion of military resources, the extent of the damage to Iran’s nuclear facilities and programme, and how the Iranian regime responds under pressure,” Rücker continued.  

Looking beyond this highly fluid situation, the usual geopolitical playbook remains his most appropriate guide. “Any oil price bounce or spike related to geopolitics used to be temporary, lifting prices for weeks rather than months,” he added. For the time being, he sees no convincing arguments as to how the current situation differs. “The risk of the Strait of Hormuz, a key choke point for oil trade, being closed seems low. Iran relies on this route to export its own oil. Closing it would alienate all oil buyers, including the United States and China, and would likely trigger a fierce and devastating military reaction, rendering any closure short-lived,” Rücker said. He is monitoring the situation and maintains his neutral view while anticipating a temporary risk premium pushing prices up in the near term.

However, on Sunday Goldman Sachs highlighted risks to global energy supply amid concerns over a potential disruption in the Strait of Hormuz that would lead to significant spikes in oil and natural gas prices.

Goldman said in a note that prediction markets, despite limited liquidity, reflect a 52 per cent probability of Iran closing the Strait of Hormuz in 2025, citing data from Polymarket. It also noted that a fall in the Iranian supply of 1.75 million barrels per day could push Brent to a peak of around $90 per barrel.

Fixed income
From a bond market perspective, Dario Messi, head of fixed income analyst at Julius Baer, said the most important variable remains the oil price and the consequence for inflation and monetary policy. “The market assumption seems to prevail that oil prices will not rise uncontrollably. In other words, the global economic impact is set to remain limited for the time being, since it requires longer-lasting oil price shocks to feed into price pressure globally. This is also reflected in the first (admittedly early) market signals following the weekend events, with US Treasury yields and credit spreads rather stable,” Messi said.

Obviously, whether this prevails largely depends on Iran’s response and how the US intends to progress. Apart from this event on the geopolitical arena, he also focuses on how sentiment evolves in the US itself, after Trump’s decision to conduct the air strikes. From an investment perspective, Messi will not change portfolios erratically and remains invested in the belly of the curve, opting for a yield pick-up through some corporate credit risk rather than extending duration risk at this point. 

Julius Baer's views are shared by Chris Beauchamp, chief market analyst at IG, who highlighted how markets have greeted the US strike on Iran with a collective shrug, clawing back overnight losses for stocks and oil prices firmly off their highs. “The scope of any Iranian response is still being determined it seems, but while it suits the regime to talk about closing off Hormuz, such a move would bring down further retaliation. At present, it looks like Iran has few good options, which may be enough to stay Tehran’s hand,” Beauchamp said.

Geneva-headquartered Union Bancaire Privée (UBP) also believes that equity markets remain quietly confident. “While the fallout appears for now contained on global inflation, the conflict carries the potential to trigger a supply shock in global energy markets. Although geopolitical risks are rising, financial markets are currently not pricing in a worst-case scenario,” UBP said in a note. UBP maintains its convictions across asset classes, favouring equities over bonds and maintains a positive stance on gold, which remains a key hedge in the event of an extreme geopolitical shock.