The US launch of retaliatory strikes on Iran on Tuesday following the downing of an American helicopter near the Strait of Hormuz could mark a turning point for global markets, with investors facing the prospect that geopolitical risk is once again becoming a primary driver of inflation, energy prices and economic growth.
The warning from Nigel Green, CEO of global financial advisory deVere Group, comes as financial markets react swiftly to the latest escalation.
US stock futures moved lower following reports of the strikes, Asian markets opened under pressure, and oil prices climbed as traders assessed the implications of a worsening confrontation centred on one of the world’s most strategically important energy arteries.
The US strikes reportedly targeted Iranian defence and radar systems after Washington accused Tehran of responsibility for the downing of a US Army Apache helicopter operating near the Strait of Hormuz, a waterway through which around a fifth of global oil consumption passes.
Nigel Green says investors should focus not only on the immediate market reaction but also on what the latest developments could signal about the future of tensions between Washington and Tehran.
“Markets haven’t been totally ignoring tensions in the Middle East over recent months, of course.
“Oil prices have reacted, shipping markets have reacted, and investors have responded to developments as they have unfolded.
“What investors have generally assumed, however, is that each escalation would remain contained, eventually cool down, and fade from the forefront.
“The helicopter incident raises the possibility that this assumption becomes harder to sustain.”
He argues the real danger is not necessarily a single dramatic escalation, but the growing risk that the confrontation becomes increasingly entrenched.
“The biggest economic threat may be the gradual acceptance that this confrontation is becoming increasingly entrenched, creating a cycle of recurring instability.”
Such a shift would have consequences that extend well beyond financial markets.
“At some point, businesses stop planning for the crisis and start planning around it. That is the moment investors should be paying attention to.
“Once companies begin assuming chronic instability, it would influence investment decisions, expansion plans, hiring intentions and long-term growth forecasts.”
The Strait of Hormuz remains one of the world’s most important economic corridors, carrying a substantial share of global oil and liquefied natural gas exports.
Nigel Green says markets are already beginning to reflect the changing risk environment.
“The market reaction tells you that investors are beginning to consider the possibility that tensions become broader, last longer, and prove more economically significant than many expected.”
He believes the greatest danger lies in the possibility that repeated periods of confrontation become “embedded in economic expectations.”
The latest developments come at a particularly sensitive moment for policymakers and investors.
For much of the past year, improving inflation trends have supported hopes that major economies are moving onto a firmer footing.
A prolonged period of recurring tensions around one of the world’s most important energy corridors could complicate that picture.
“Energy remains one of the most influential components of the global inflation outlook.
“If markets begin to assume that disruptions in the Gulf are likely to recur, energy prices could remain more volatile, and inflation could prove more stubborn than many currently expect.
“What begins as a security issue can quickly become an inflation issue, a growth issue and ultimately an investment issue.”
Global equities have enjoyed substantial gains over recent months, particularly in AI and tech-related sectors. The deVere CEO says investors should not assume those themes will remain insulated from geopolitical developments.
“The market has spent months rewarding investors for focusing on AI, earnings and interest rates.
“The helicopter incident is a reminder that geopolitics still has the power to change the investment equation very quickly.
“The risk is that repeated flare-ups become part of the baseline assumptions underpinning the global economy.”
Many expected the military pressure applied to Iran over recent months to force a decisive shift in the regional balance of power.
Instead, the latest developments suggest “something far more complicated is emerging,” notes the deVere CEO.
Far from delivering a clean strategic outcome, the conflict appears to be settling into a pattern in which periods of confrontation are followed by temporary calm, only for tensions to resurface.
“The danger is not simply another military exchange. It is the emergence of a chronic source of geopolitical and economic uncertainty that repeatedly disrupts markets and reshapes investment decisions,” explains the deVere CEO.
The downing of the American helicopter highlights an uncomfortable reality for Washington and its allies. Iran retains both the capability and the willingness to impose costs on its opponents despite sustained military pressure.
As long as Iran can demonstrate that it remains a consequential force in the Gulf and retains leverage around the Strait of Hormuz, it can claim that attempts to diminish its strategic relevance have fallen short.
Nigel Green concludes: “The greatest risk may be a confrontation with no clear endpoint, where periods of relative calm are repeatedly interrupted by fresh escalation, and uncertainty becomes part of the backdrop.
“For investors and policymakers, the consequences would extend far beyond energy markets.
“Inflation expectations, business confidence, investment decisions and growth forecasts around the world could all be affected.”
