– Mike Tyson
“Everyone has a plan until they get punched in the mouth.”
Tensions in the Middle East came to a head at the end of February, as the US and Israel launched a series of airstrikes on Iran, killing Supreme Leader Ali Khamenei and several other Iranian officials.
The fallout from these continued attacks, and Iran’s retaliatory strikes on Western aligned neighbours and effective blockading of the Strait of Hormuz, remained front and centre in March. Oil prices whipsawed, sovereign bonds sold off, and central bank rate paths were repriced to hikes. Equities ground lower and even gold, a long-preferred haven asset, tumbled markedly. This was a difficult month for investors, with few places to hide.
“This was a difficult month for investors, with few places to hide. “
Rather than capitulating to the US and Israel’s devastating attacks on government personnel and defence infrastructure, the Iranian regime has dug in, commencing a decentralised, asymmetric campaign against US military assets and regional energy infrastructure, as well as effectively halting regular commercial traffic through the Strait of Hormuz, the chokepoint through which roughly 20% of global oil and seaborne LNG normally pass. Global oil supplies have been threatened. While alternative pipeline routes through Saudi Arabia and the UAE offer some spare capacity, this is far insufficient to offset the shortfall.
Supply pressures from Iran’s actions extend beyond crude, and long-term second-order effects could be significant. Iranian attacks have wiped out close to 20% of production capacity from Qatar’s Ras Laffan gas facility, responsible for nearly a quarter of global LNG supply, sending European gas prices sharply higher. Similar hits to urea production, a key input to fertilisers, is beginning to strain supply.
Acutely aware of the long-term risks of continued disruption, President Trump’s public response has been characteristically volatile. He issued a 48-hour ultimatum on March 22nd threatening to destroy Iranian power plants if the Strait was not reopened, before backing down twice, first on March 23 and again on March 26, citing ongoing negotiations that Iran flatly denied were taking place.
Iran has selectively allowed tankers from perceived neutral parties, including Pakistan, India, and China, through the Strait as goodwill signals, though volumes remain negligible relative to normal traffic. Iran’s parliament is reportedly formalising a fee-based regime for Strait transits, modelled on the Suez Canal toll structure. Meanwhile, the White House is struggling to control the narrative as it becomes apparent this was not a quick victory that was initially assumed. Finding an offramp is made harder as Israeli and US interests diverge.
“The White House is struggling to control the narrative as it becomes apparent this was not a quick victory that was initially assumed.”
March offered few genuinely safe corners amid this volatile picture. Equities fell, bonds sold off, and even gold, which most investors would expect to rally during a geopolitical crisis of this magnitude, closed the month sharply lower. The one consistent winner was the sector most directly leveraged to the conflict: energy. Almost everything else paid the price.
“The one consistent winner was energy. Almost everything else paid the price.”
The Oil Complex
Brent crude opened March at $89 per barrel, already carrying a premium built in February as tensions escalated, before entering into one of the more violent price moves in the commodity’s modern history. The immediate closure of the Strait of Hormuz sent Brent to an intraday high of $119.50 before a brief pullback on Trump’s initial diplomatic overtures. Subsequent escalation, including strikes on South Pars, drove the price back close to $104 by month-end: ending up over +50% in March, notching one of the commodity’s largest monthly gains in history.
The US is more insulated from the first order effects of this oil shock than other allies, helped by expanded domestic production capabilities. The spread between WTI (a benchmark used to track US prices) and Brent normally sits between $2 and $5, but has now widened to c.$14. Nonetheless, the cost shock is still being felt at the pump: US gasoline prices have climbed nearly a dollar per gallon since the war began, approaching $4 nationally, while jet fuel costs have nearly doubled in that time, upending airlines forecasts of a record year.
The physical market paints a more harrowing picture. In Oman and Dubai, where supply risk is priced as an immediate reality rather than a futures curve abstraction, spot crude briefly surpassed $150 per barrel in March as Asian buyers raced to secure critical supplies. This points to meaningful further upside to Western benchmarks if supply disruptions persist.
Nonetheless, oil traders continue to price a relatively swift resolution to the war: near term futures are trading well above deferred contracts. This may be wishful thinking. With no clear offramp for US involvement and looming risks of further escalation, that forward curve may soon price higher, with material impacts across all asset prices.
“Oil traders continue to price a relatively swift resolution to the war.”
The rates complex
Market expectations of rate movements swung considerably in March, with a broad consensus of rate cuts in 2026 replaced by a non-trivial possibility of hikes. The textbook response to a supply-driven price shock is to look through it, particularly when growth is weakening. Normally, investors would expect central bankers to do just that, but knowing policymakers are still scarred from the post-covid inflation episode have left markets unwilling to take that on faith. Rate hike pricing likely overshoots what central banks will actually deliver, but it is fear that seems to be driving markets for now.
The month’s rates volatility was most pronounced in the short end, as markets repriced near-term policy expectations without fully pricing a sustained growth deterioration. The US 10-year ended the month around 4.4%, nearly reversing February’s gains entirely, touching 4.48% intraday in late March, its highest since July 2025.
UK Gilts were hit particularly hard. The UK’s energy import dependence make it particularly exposed to an oil shock, and the yield on a 10-year gilt, already the most expensive long-term government borrowing in the G7, has begun to approach 5% yield.
“Rate hike pricing likely overshoots what central banks will actually deliver, but it is fear that seems to be driving markets for now.”
Equities
The rotation away from tech, underway since February this year, sharpened in March. The S&P 500 ended the month -5% lower, though this headline conceals pronounced divergence. Losses have been led by the “Hateful Eight” (the Magnificent Seven plus Oracle), all of which are facing the compounding headwinds of AI disruption and higher discount rates. Software companies continue to struggle, while more defensive sectors have managed to hold their ground. Conversely energy companies rallied with double digit returns.
Internationally, Europe’s structural energy dependence and its proximity to the economic fallout have amplified its exposure to oil supply concerns: the Euro Stoxx 600 ended the month -7.5% down. The Nikkei 225 surpassed this, down over -12% as yen weakness amplified the energy import shock, while the MSCI Emerging Markets index fell -13%. Within the EM matrix, China has held up comparably well, mostly mimicking developed markets to end the month at c.-7%, while India, a large oil importer, and Taiwan and Korea, caught in the AI related selloff, notched losses in the -10% to -15% region.
Markets awoke to a brighter picture on April 1st, and our screens are awash with green as we write, after President Trump signalled preference for a settlement with Iran. As with all relief rallies, we remain cautious – even more so considering the copious U-turns and false signals we have seen in the previous months. While a swift resolution to the war would prove a welcome relief to markets, energy supply disruption cannot be smoothed overnight, and the second order effects of this recent volatility may take some time to rear their heads.
“Losses have been led by the “Hateful Eight” (the Magnificent Seven plus Oracle)… While more defensive sectors have managed to hold their ground.”
Gold
One might expect gold to be the clear beneficiary of a military conflict in the world’s most critical energy corridor. Instead, it fell from above $5,400 in early March to below $4,300 at its trough, erasing its year-to-date gains almost entirely, before staging a relief rally to end the month at c.$4,660.
The explanation for this fall is familiar from past stress episodes: when markets need cash, investors sell what is liquid rather than what is least wanted. Gold, entering the year at stretched long positioning after a strong 2025, was the most available source of liquidity in portfolios facing margin pressure elsewhere. In times of market stress, not even a canonical safe haven is immune.
We continue to look through this near-term volatility and retain conviction in gold’s long term value drivers, and its role as a portfolio diversifier.
“When markets need cash, investors sell what is liquid rather than what is least wanted.”
Private credit was dominating market conversation in the weeks prior to the Iran conflict. These concerns have not gone away so much as been eclipsed.
The structural issue remains unchanged: illiquid private loans packaged into retail-facing vehicles with short-term redemption windows have created a self-reinforcing cycle of outflows and gating under pressure. Several of the largest names in the space limited quarterly withdrawals in March after requests outpaced what fund structures formally permit.
Gates are functioning as designed, preventing forced asset sales that would harm remaining investors. The more pertinent concern is the bank-run dynamic that takes hold once sentiment turns: the act of gating, however structurally rational, can accelerate the very outflows it is intended to contain. A more constructive signal has come from managers who have committed their own balance sheet capital to honour redemptions in full, a meaningful distinction from those relying solely on fund-level limits.
“The structural issue remains unchanged: illiquid private loans packaged into retail-facing vehicles with short-term redemption windows have created a self-reinforcing cycle of outflows and gating under pressure.”
After a bumpy start of the year and a tumultuous March, investors may be right to feel more positive going into April. A swift resolution to the conflict would mitigate any more severe long-term impacts on energy prices, rendering this shock a speed bump rather than something more serious, and we remain cautiously optimistic. Economic fundamentals are still relatively strong as no permanent demand destruction has yet occurred in leading economies. As the outcome remains unclear, broad diversification across and within asset classes remains the preferred portfolio strategy.
“As the outcome remains unclear, broad diversification across and within asset classes remains the preferred portfolio strategy.”
If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.com
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