JM Finn Investment Office update regarding the initial market reaction to the events in the Middle east
Events over the weekend have pushed the Middle East into a more dangerous phase, following large‑scale joint US-Israeli strikes on Iran. The operation targeted government centres, nuclear facilities and Revolutionary Guard sites, and has resulted in the confirmed death of Supreme Leader Ali Khamenei alongside other senior officials. Strikes launched on Saturday morning hit key infrastructure in Tehran and other major cities, prompting President Trump to signal openly that leadership change was an objective, calling on the Iranian people to “take over” their government. Unlike the relatively contained twelve‑day conflict last June, however, Iran has demonstrated that it retains substantial retaliatory capacity. Missile and drone strikes have caused explosions not only in Israel but also across Bahrain, Kuwait, Qatar, the UAE and Saudi Arabia. While Iran’s leadership has been effectively decapitated, the Revolutionary Guard remains deeply embedded within the state, and at this stage it is reasonable to expect a conflict that is longer, broader and more intense than last year’s episode.
The most critical immediate risk to the global economy lies in the Strait of Hormuz, through which roughly 20% of global oil flows. Although the strait has not been formally closed by a permanent naval blockade, it is effectively disrupted. Several commercial vessels turned around over the weekend after receiving warnings from Iranian forces, and shipping activity has dropped sharply as insurers and operators reassess the risks. In the near term, Brent crude is likely to push towards $80 per barrel. Bloomberg Economics estimates that a full closure of the strait could drive prices as high as $108 per barrel, with additional upside risks if Iran targets regional energy infrastructure directly or uses proxies such as the Houthis to disrupt shipping across a wider geography. These actions would represent a deliberate attempt to impose economic costs on the US and its allies.
The primary transmission channel for this crisis is energy. A sustained move towards $108 per barrel would constitute a significant inflationary shock, with a useful rule of thumb being that each $10 rise in oil prices adds around 0.2% to the Consumer Prices Index inflation rate. Beyond oil, the threat to major shipping lanes is already feeding through into higher freight rates, longer delivery times and sharply increased insurance costs, echoing previous regional conflicts but on a far larger and more complex scale. The pace of escalation is also accelerating, with the window between attack and retaliation compressing from days to hours, increasing the risk of miscalculation.
From a political perspective, it is clear that the Trump administration lacks a coherent and credible strategy for what comes next. In recent days, senior figures such as JD Vance have suggested that regime change is a matter for the Iranian people, while the president himself has explicitly framed leadership change as a central objective of the intervention. Asking the population simultaneously to “rise up” and to “stay at home” underlines the absence of a clear pathway to building a legitimate and stable Iranian state once the initial military objectives have been met.
Financial markets have responded in a predictable but still measured fashion. Risk assets sold off initially, while oil and the precious metals complex have rallied. Although Iran has not yet targeted major oil infrastructure and the Strait of Hormuz technically remains open, markets are pricing a meaningful probability of disruption, with oil volatility implying a wide range of possible outcomes. Shipping rates on key Middle East–to–China routes have surged to multi‑year highs, though forward freight markets continue to assume that any disruption may ultimately prove temporary.
At this juncture our central assessment is that, despite Trump’s rhetoric, the underlying objective of the operation is less about outright regime change and more about forcing a change in behaviour: weakening Iran’s capacity to project power without triggering complete state collapse. Even so, the range of possible outcomes remains wide, from a fragile status quo to more destabilising scenarios in which the Revolutionary Guard consolidates control. From a macro perspective, a conflict lasting more than three weeks would have serious consequences. Gulf producers could run out of storage capacity and be forced to shut in production, potentially pushing Brent into a $100–120 range. Even absent physical supply losses, sustained risk premia around $80 oil would slow global growth and lift inflation meaningfully into the first half of 2026.
Despite these risks, the broader message from fundamentals and market positioning is cautiously constructive. During 2026, fiscal and monetary policy are likely to support solid global growth, with the US administration keen to deliver a strong economy ahead of November’s midterm elections, and corporate earnings delivery is likely to be above the long-term average. Elsewhere, there is less evidence of speculative excess in the market. On balance, we think that this episode will not mark the start of a prolonged market downturn.
The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.