- Brent crude oil prices have risen 18% so far this week to c.$833
- Energy prices typically make up c.6.3% of the consumer price inflation figure4
- The Strait of Hormuz accounts for c.25% of global seaborn oil shipments and c.20% of liquid natural gas flows1
Whilst events and retaliation continue to unfold in the Middle East and around the world, this week’s note will set aside the devastating human cost of the ongoing conflict and instead focus on the key theme driving market volatility this week, inflation. From the point of view of our portfolios, there are two key questions to consider; firstly, how long and severe will the disruption of energy flows through the Strait of Hormuz be; and secondly, will energy production or export facilities be damaged?
For context, the Strait of Hormuz accounts for c.25% of global seaborn oil shipments and c.20% of liquid natural gas flows1. Following the reported attacks on several ships, the waterway is effectively closed and the US has responded in an attempt to ease oil prices (up 18% over the week at the time of writing5) with President Trump ordering the US International Development Finance Corporate to provide political risk insurance and financial guarantees for maritime trade in the Gulf. Trump is also said to be analysing the possibility of deploying the US Navy to escort tankers through the strait to ensure safe passage2.
Brent crude oil price over 5 years
Source: Alpha Terminal, 05/03/2026
But while there has been a significant uplift in the Brent oil price in recent days, it would be remiss not to note that the price has been depressed in the near past, and conversations just earlier this year were around a surplus of supply, with the price trending downwards since October 20235.
This shock to energy prices affects regions differently, with importers of energy most negatively affected. As we can see below, countries most dependant on importing energy are in Europe and parts of Asia, most notably Japan – which is consistent with equity market performance this week. Notably, European gas supplies were already challenged moving into this conflict, having to pivot supply away from Russian gas following the invasion of Ukraine just four years ago and having endured a cold winter.
Source: JP Morgan, 2026
Looking ahead, the most cooling effect on markets would be a rapid deescalation, which we believe would be within the interest of the US, with mid-term election campaigns set to begin shortly and a seemingly low appetite for a prolonged conflict. Whether the market experiences an inflation shock, or indeed an inflation and a growth shock, depends on governments’ responses and willingness to react to inflation with accommodative fiscal policy. For now, we are not making any knee jerk reactions within portfolios. As shown below, which includes two Gulf war past scenarios, markets often recover in short order.
Source: JP Morgan, 2026
Returns shown above are that of a 60% equity and 40% fixed income portfolio both one year (grey bar) and three years (blue bar) after the market experiences shock.
Bowmore portfolios
The mandates that we manage have not been immune to market movements this week; however, our defensive allocations and positioning have helped to dampen this volatility by some way. Funds within the equity asset class, including Regnan’s Sustainable Water and Waste, have protected on the downside, falling just 0.78% in the previous 7 days (at the time of writing, 05/03/2026) vs their benchmarks -5.77%.
While there has not been any monetary policy response yet, bond markets have been busy trying to price in the many possible outcomes. Needless to say, this is quite a challenge, but what we have seen so far is prices moving downwards more dramatically at longer maturity dates with central banks probably less likely to continue cutting interest rates while the conflict persists. In Europe, the market is even pricing in the possibility of interest rate hikes. Our positioning within fixed income has been helpful to this point, as we are taking little interest rate risk (otherwise known as duration) within portfolios (currently 4.2 years vs the UK All Gilts index of 7.8 years). This has meant that we haven’t participated in the inflation fear-driven pronounced sell off at the longer maturity end of the yield curve, with much of our exposure continuing its glide path to maturity.
Source: Alpha Terminal, data as at 05/03/2026
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1 Capital Economics, 2026
2 Reuters, 2026
3 Alpha Terminal, 2026
4 Investopedia, 2026
5 Trading Economics, 2026
6 Â DFC.Gov, 2026