Middle East Tensions and Market Impact: What Investors Should Know

June 2025

By Will Glyn

Key Points at a Glance:

• Energy supply risk appears contained: While disruption is possible, Iran’s global share of energy production has declined from 10% to around 4%.
• Damage to nuclear facilities: Two key Iranian sites have been hit, likely delaying nuclear development, but not halting it altogether.
• Markets remain stable — for now: Despite rising tensions, financial markets have responded calmly, with no major economic impact priced in.
• Historical context matters: Past Middle Eastern conflicts have triggered global economic shocks, but the present dynamics are different.

A Region with a History of Economic Shock

Geopolitical conflict in the Middle East has historically had far-reaching consequences for the global economy. The oil embargo of 1973 and the Iranian revolution later that decade both triggered sharp increases in energy prices, driving inflation and severely impacting savings and consumer purchasing power. More recent conflicts — such as the Gulf wars in 1990 and 2003 — had a more moderate effect, but nonetheless contributed to global economic uncertainty.

Tensions between Israel and Iran have flared up again, continuing a pattern of escalation that has intensified over the past two years. While deeply concerning from a humanitarian and geopolitical perspective, the question for investors is whether this conflict poses a material threat to financial markets or the global economy.

Market Reactions: Why the Calm?

Financial markets often respond less emotionally than the headlines. While conflict naturally raises concern, markets tend to view such events through a lens of probability, economics, and long-term implications.

Currently, the market appears to see the Israel–Iran situation as contained. The main concern from an investment standpoint is whether energy supply routes — particularly through the Gulf — will be disrupted. So far, that risk remains low. There’s also limited fear that global trade, including through the Suez Canal, will be meaningfully impacted.

This measured reaction raises the question: why are investors less spooked this time?

Iran’s Global Energy Influence Has Declined

One factor is Iran’s diminished role in global energy markets. Its share of global production has dropped to around 4%, thanks in part to increased output from other regions and longstanding international sanctions. While Iran still supplies oil, often through less-regulated channels and primarily to non-Western markets such as China, a disruption in its supply would be far less impactful than it was in the 1970s.

Risks of Escalation: Who Might Get Involved?

Currently, the conflict is largely between Israel and Iran. The U.S. has stated that Israel acted independently. Although Iran has rejected this claim, it has not retaliated directly against the U.S. — likely due to the clear military imbalance.

One potential flashpoint is the Strait of Hormuz, a narrow waterway vital to global oil exports. While Iran could attempt to disrupt this route, it would be difficult to sustain any blockade with the U.S. Fifth Fleet stationed nearby. Prolonged disruption remains unlikely.

There also appears to be little appetite among other Middle Eastern nations to join Iran’s cause. Political and religious differences, combined with economic pressures, mean regional support is limited. Many oil-producing countries are unlikely to risk lost revenues by curbing output in solidarity with Iran.

Israel’s Strategy and Iran’s Nuclear Capabilities

Recent Israeli strikes have focused on disrupting Iran’s nuclear infrastructure. Two key facilities — Isfahan and Natanz — have reportedly sustained serious damage, affecting Iran’s nuclear supply chain. However, Israel was unable to significantly impact the underground Fordow enrichment plant, which remains a critical concern.

Fordow is believed to have processed uranium at enrichment levels close to the threshold for weapons-grade material. Without U.S. involvement, Israel lacks the capability to destroy such deeply buried facilities. This suggests a strategy focused on delaying rather than eliminating Iran’s nuclear progress.

In addition to nuclear infrastructure, Israel has now targeted energy assets, including a fuel depot, refinery, and natural gas facility. These attacks are more likely to affect domestic energy availability in Iran than international supply. They may also reflect a broader political strategy aimed at destabilising internal support for the current Iranian leadership.

Investor Takeaways: What Should You Do?

There’s an old saying in markets: “Buy on the sound of gunfire.” The idea is that fear-driven sell-offs can create long-term buying opportunities. However, in this case, markets have barely flinched, so there’s no obvious discount to take advantage of — at least for now.

Investors appear confident that Iran is unlikely to escalate the conflict in a way that would trigger Western involvement or endanger key energy corridors. The stakes are simply too high for Iran to provoke such a response.

In Summary

The situation is undoubtedly serious, and geopolitical tensions in the Middle East must always be monitored closely. However, from an economic and investment perspective, the current conflict would need to escalate significantly before posing a systemic risk to global markets.

For now, the rational response may be continued vigilance rather than immediate action.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.