Assessing the short- and long-term implications of the Middle East conflict
Key takeaways
In the short term, risks are rising and caution is warranted.
In the long term, history argues for patience and discipline.
The challenge for investors is not choosing one idea over the other but learning to live with both at once.
F. Scott Fitzgerald once observed, “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” I will not claim to possess first-rate intelligence, but I am trying to keep two ideas in my mind at the same time as investors navigate a world that has become increasingly uncertain.
The first idea is rooted in how markets are likely to respond as the unrest in the Middle East persists. The initial questions at the commencement of all conflicts are whether the conflicts will alter the direction of the global economy and whether it will change the path of central banks. At the outset of this war, many market participants hoped the answer to both questions would be no. The assumption was that the conflict would be short lived, contained, and ultimately have limited impact on inflation and growth.
That optimism is becoming harder to justify. Rather than winding down, the conflict is intensifying. The expansion of hostilities and the growing frequency of attacks on energy infrastructure are particularly troubling. Oil prices and natural gas prices have moved higher.1 Gasoline prices have followed.2 These are not abstract developments. They directly affect inflation expectations, corporate margins, and household purchasing power.
The implication is straightforward but uncomfortable. The global economy is likely to slow. Higher energy costs act as a tax on growth, especially for energy importing regions. At the same time, rising inflation expectations make it difficult for central banks to ease policy.3 The optimism that fueled interest in cyclical assets and non-US dollar assets earlier in the year was grounded in a belief in global expansion and synchronized central bank easing in the United States and emerging markets. That foundation is now less secure.
Equities and credit have held up reasonably well so far4, but the risks are clearly rising. In this environment, the focus should shift toward higher quality assets, more defensive sectors, and US dollar exposures. Commodities may also serve as an effective hedge.
That is the first idea, and it deserves respect. Ignoring it would be complacent. But it is not the only idea worth holding.
The second idea is that this too shall pass. Investor time horizons are almost always longer than the duration of any single conflict. Periods of stress have a way of compressing perspectives and encouraging emotional decisions. History suggests that those moments are rarely the best times to abandon long-term plans.
It is worth remembering that the twentieth century was defined by extraordinary upheaval. The United States endured two world wars and numerous other conflicts, along with recessions, depressions, and political turmoil. Over that same period, the Dow Jones Industrial Average rose from roughly 40 to more than 11,000.5 The path was anything but smooth, but long-term investors were ultimately rewarded for staying invested.
Holding these two ideas at the same time is not comfortable. In the short term, risks are rising and caution is warranted. In the long term, history argues for patience and discipline. The challenge for investors is not choosing one idea over the other but learning to live with both at once.
Important information
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are indexed to inflation.
West Texas Intermediate (WTI) is a type of light, sweet crude oil that comes from the US.
The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.
The opinions referenced above are those of the author as of March 20, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.
