Markets and Economy Client Conversations: Market implications of US conflict with Iran

The current US conflict with Iran may carry investment implications, but the scale of economic and market disruption should ultimately depend on its length and severity. Given historical data on past US conflicts in the region and tensions surrounding the Strait of Hormuz, the future is uncertain. But historical experience may provide insight into potential market outcomes.

As a financial professional, you can help your clients understand the possible impact with easy talking points from our Client Conversations series. This conversation guide covers the following points you can use to help ease your clients’ concerns about this complex topic:

Iran produces a small percentage of the world’s energy resources

A common concern about the conflict with Iran is the loss of oil and other energy resources from the global market. However, Iran only accounts for approximately 4% of global oil production and has limited ability to directly influence world energy markets. Due to global sanctions, most of Iran’s oil exports go to China. Therefore, most other countries haven’t relied on Iranian oil.¹

Iran can still influence world energy markets

While Iran has limited influence on oil production, it can affect supply and impact markets through its control of the Strait of Hormuz. Nearly 21% of oil and liquefied natural gas has shipped through this chokepoint. That’s half of the 40% supply that ships by sea through the Arabian Peninsula in general.² Closing the Strait of Hormuz potentially constrains world energy supply, putting upward pressure on energy prices.

Geopolitical uncertainty hasn’t impacted the markets as much as many people believe

While geopolitical uncertainty like this often leads to temporary volatility, it hasn’t historically weighed significantly on longer-term stock market returns. The S&P 500 Index, dating back to 1960, has averaged a 15.3% gain in the year following a peak in the Geopolitical Risk Index, which generally spikes during periods of global conflict. 

To help navigate headline risk, keeping a long-term perspective and sticking to a pre-defined investment plan are key.