Israel–United States–Iran conflict: the beginning of the end?

In last month’s analysis note we pointed out that, in relation to the conflict between the United States/Israel and Iran, the key factor for financial markets — and, therefore, for our strategy — was and remains twofold: how high the price of oil can climb and for how long that rise can be sustained. This dynamic depends essentially on the situation in the Strait of Hormuz, through which roughly a fifth of global oil and gas exports pass.

Given the constant flow of news about the conflict, we have focused our analysis on how the moves made by the parties involved feed through to the price of oil. In this context, and except in isolated cases with very high risk profiles, our recommendations have been limited, especially in portfolios structured mainly around investment funds.

The first reason is operational: traditional funds are not designed for short-term tactical trading. Trying to take advantage of fast market moves with instruments that take several days to execute orders can be counterproductive. By the time a sale is carried out, a significant part of the fall has often already been absorbed, and by the time the market is re-entered, much of the recovery has already taken place. In fact, this has already happened recently, with most assets returning to levels similar to those before the conflict after a very rapid recovery following the ceasefire announcement.

The second reason is strategic. Our view is that we are not facing a structurally prolonged conflict as far as the closure of the Strait of Hormuz is concerned. The global economy could hardly sustain oil above $110 for months without triggering a significant pickup in inflation and, with high probability, a global recession.

Nor would it be a politically tenable situation for the Trump administration in a midterm election year. Sustained high energy prices would clearly erode the Republican Party’s electoral chances, particularly given that once inflation has fed through to the real economy, it is difficult to reverse.

In this sense, we stand by our hypothesis that the conflict will not become chronic. The two-week ceasefire agreement and the start of negotiations (despite not having borne fruit yet) point in this direction. The process is likely to include episodes of volatility and temporary breakdowns, but the overall dynamic seems to be heading towards a resolution.

As for fixed income, although all maturities have suffered, we believe the strategy of having kept durations short was the right one. Rising inflation expectations have pushed interest rates higher, affecting medium- and long-term bonds in particular. Our position in short- and very short-term funds and ETFs has helped limit the impact on conservative and moderate portfolios.

And the next quarter?

As we have mentioned, how markets evolve will depend fundamentally on how long tensions in the Strait of Hormuz last and, consequently, on how energy prices behave.

If oil stays below $100 and begins a downward trend, we believe it is likely that the market will consolidate this scenario over the coming weeks, despite possible episodes of volatility linked to the negotiations.

From a strategic standpoint, the key is to determine whether the market remains in a corrective phase or resumes its upward trend. If our scenario is confirmed, the focus will return to the macroeconomic and corporate fundamentals, which remain solid.

In addition, we do not rule out the return of one of the market’s main drivers: interest rate cuts by the Federal Reserve. Although the recent rise in energy prices may put temporary pressure on the CPI, the underlying trend in inflation remains downward, particularly due to the moderation of key components such as rents.

In this context, our strategy for the second quarter of 2026 will initially stay the course. The sectors and regions already present in the portfolio retain their fundamentals. At the same time, we will identify opportunities in assets, sectors and geographies that stand to benefit from this environment and will consider selective rotations.

In fixed income, the recent correction opens up an opportunity to increase exposure in short- and medium-term maturities.

And if we are wrong?

If the conflict were to escalate again, its nature would need to be analysed. Not all scenarios have the same impact: decisive US intervention could even reduce the price of oil if it restores control over the flow of oil.

By contrast, an adverse scenario in which control of the strait is not regained would call for a clear defensive response.

The first signal we will be looking at remains the same: if oil stays below 100 dollars and starts to trend down, the portfolio stays as it is; if not, we activate the defensive response just described.