Assessing the Investor Impact of Conflict in the Middle East
On June 22, during the predawn hours (local time), U.S. bombers and cruise missiles struck Iranian nuclear facilities in an attempt to prevent Iran from taking the final steps needed to produce nuclear weapons. While it remains unclear the extent of damage done by these strikes, and to what extent Iran’s nuclear ambitions have been thwarted, initial assessments by the U.S. military seemed to indicate that significant damage had been done. It may be some time before additional reliable information emerges.
Up to this point, financial markets have reacted to the U.S. bombing of Iranian nuclear sites with a degree of measured equanimity. Equity markets moved higher on June 23, the first trading day following the raid. Meanwhile, bond yields drifted lower during the day, while oil prices and the dollar declined.
| Market Reaction, June 23, 2025 | |
|---|---|
S&P 500 | 0.96% |
MSCI EAFE | -0.27% |
WTI Crude | -8.57% |
Gold | 0.00% |
10-Year Treasury Yield | -0.03% |
For illustrative purposes only. Past performance is no guarantee of future results. One cannot invest directly in an index or benchmark, and those do not reflect the deduction of various fees that would diminish results.
By the evening of June 23, there appeared to be some headway made towards a ceasefire between Iran and Israel. Should this ceasefire actually occur, markets would undoubtedly breathe a sigh of relief, but given the market’s tepid initial response thus far, there may not be a dramatic market reaction to a pause in hostilities.
A history of U.S. military presence in the Middle East
While this strike was the first act of direct military involvement by the U.S. in the rapidly escalating conflict between Israel and Iran, we believe it’s important to keep in mind that the U.S. has been involved militarily in the Middle East for much of this century. The War in Afghanistan lasted for the better part of two decades, from the fall of 2001 until the final withdrawal in 2021. Operation Iraqi Freedom began in 2003 until troops were withdrawn in 2011. As well, U.S. troops intervened in Libya in 2011 and then returned to Iraq in 2014. The troops have also kept an ongoing presence in both Syria and Yemen for much of the last decade. Despite these various conflicts, the U.S. economy and financial markets have generally continued to function at a high level.
In the present conflict, there remains the possibility for increased economic and market risks. Should Iran choose to close the Strait of Hormuz, it would affect a significant portion of the world’s oil supply (ostensibly up to 20%). This would have a direct impact on oil prices, driving the cost higher and adding some inflationary pressure. However, closing this strait would further isolate Iran and create a high probability that it would draw a response from a broad coalition of countries. It would also have a significant impact on China, which is one of the world’s few countries to maintain a direct trading relationship with Iran.
Harming one of their few “friends” in the world may not be the wisest course of action for Iran. There are many reasons that Iran has never attempted to close the Strait of Hormuz, and those reasons are just as strong today, if not stronger, as they’ve ever been. Instead of blocking the Strait of Hormuz, Iran could specifically attack oil infrastructure in the Middle East. Again, this would most directly impact countries with which Iran has relatively good relations, rather than impacting Israel and the U.S. It may also invite a direct conflict with Saudi Arabia and the UAE; to this point, both have sought to remain neutral in Iran’s conflict with Israel.
Iran remains a relatively weak country. Over the past year, any ability they may have had to defend themselves against attack seems to have been significantly, if not completely, degraded by Israel. Iran’s proxies—Hezbollah, Hamas and Syria—have been significantly weakened and are no longer able to provide material support to Iran. Russia, an erstwhile ally of Iran, has its hands full with its war against Ukraine and is unable (or unwilling) to provide any meaningful help. And it’s difficult to believe China would side with Iran over its relationships with Saudi Arabia and the UAE. Iran seems to be, at this point, virtually defenseless against Israeli and American aerial attacks, and can be viewed as essentially alone and without supportive allies.
Investor focus and positioning for what’s ahead
Given the current state of affairs in the Middle East, U.S. markets seem to be much more focused on domestic policy issues, specifically concerns over inflation, tariffs, budget deficits and monetary policy. As always, how these economic and policy variables impact economic growth and corporate profits will be primary factors in the path forward for financial markets.
While there remains a risk for negative impacts to markets amid heightened uncertainty, particularly if Iran takes further action that causes oil prices to rise, we believe that owning well-diversified portfolios associated with a well-designed investment plan remains the soundest approach to dealing with geopolitical uncertainty. Despite these risks in the Middle East, other developments overseas might be more bullish for investors. These more positive developments include expansionary fiscal policy in Europe driven by increased defense spending, and more accommodative monetary policy by the European Central Bank.
We believe that these policies, along with the potential for reduced regulation and tax cuts in the U.S., may provide opportunities for investors in diverse areas such as energy, real assets, defense and infrastructure, among others. For qualified and accredited investors whose investment plan allocates capital to private markets, this may be an opportune time to discuss with their financial advisor the feasibility of increasing that allocation within their portfolio, particularly in these key areas.
Recent tumultuous events in the Middle East highlight the importance of developing a comprehensive and resilient strategic investment plan, combined with sound financial planning and advice. By focusing on these tasks, investors can help weather these sorts of exogenous geopolitical events that are beyond our control. Revisiting your strategic investment plan or updating financial planning tasks on a regular basis is simply good financial hygiene. If you believe that additional work might need to be done on such plans of yours, please reach out to your Corient Wealth Advisor.
ABOUT THE AUTHOR
Greg Bone
Greg is a Partner, Investments Leader in our Dallas office. He joined legacy firm RGT team in 2002. All told, he has more than 20 years of experience in portfolio management and investment research. Greg previously served as a portfolio manager at H.D. Vest and has considerable experience in both graduate and postgraduate economic research.
Greg received his Bachelor of Arts in Economics from Hendrix College and holds a master’s in economics from Southern Methodist University. He holds the Chartered Financial Analyst® designation.
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The indices presented herein are not actively managed. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. Certain portfolio or fund performance may not be comparable to the performance of these indices. It is not possible to invest directly in an index. Unless otherwise noted, index returns within this presentation have been adjusted for the reinvestment of dividends (total return), and foreign index returns reflect the withholding of taxes on dividends (net return). Those foreign indexes denoted as “GR” do not reflect the withholding of taxes on dividends.
It should not be assumed that your Corient account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Corient accounts; and (3) a description of each comparative benchmark/index is provided below.
The S&P 500 Index measures the performance of the large cap segment of the market. The index is considered to be a proxy of the US equity market.
The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
The WTI crude index, also known as West Texas Intermediate, is a benchmark for crude oil prices, primarily used in the United States. It refers to a specific grade of light, sweet crude oil, and also to the futures contract traded on the New York Mercantile Exchange (NYMEX)
The LBMA Gold Price benchmarks are the global benchmark prices for unallocated gold and silver delivered in London, and are administered by ICE Benchmark Administration Limited12.The LBMA Gold Price is the London gold price per troy ounce of gold for delivery in London through a member
of the LBMA authorized to effect such delivery, stated in U.S. Dollars, as calculated and administered by independent service provider(s), and published by the LBMA on its website3.The LBMA Gold Price is set twice a day in an electronic gold auction
The Bloomberg U.S. Treasury 7-10 Year Index, tracks the performance of U.S. Treasury securities with maturities between 7 and 10 years. It is a market-weighted index, meaning the securities with larger market capitalizations have a greater influence on the index's value. The index is used as a benchmark for investment funds and ETFs that focus on intermediate-term U.S. Treasury bonds.
