Has the current geopolitical crisis in the middle east destroyed the bull case for risk assets?

Financial markets have given up most of their year-to-date gains, in March, as the Israeli-US war with Iran significantly disrupts global energy markets, leading to a significant spike in the price of oil, and dimming the prospect of further interest rate cuts from global central banks.

Does this kill the bull case for equities? Most investors entered 2026 buoyed by the prospects of further rate cuts from the US Federal Reserve and other central banks, and a welcome rotation into emerging markets as the prospect of a global recession receded, and risk appetite returned.

Have events over the past fortnight changed everything?

Market consensus, if I had to risk summarizing it in a paragraph, is probably a combination of (1) President Trump will seek an offramp (those pesky mid-terms are coming) and (2) Iran will only be a temporary menace (some compromise will be found in the Strait of Hormuz, and anyway it will soon be in no position to threaten anyone).

In other words, do not jump back in just yet, but everything should be fine quite soon.

Is this too complacent? The standard playbook from financial markets (and apologies that this downplays the humanitarian catastrophe) is geopolitical events are usually not long lasting or quickly become irrelevant and consequently offer investors opportunities to benefit from short-term volatility.

Indeed, the global economy has proved resilient to both the Russian Ukrainian war (which seemingly is in a stalemate that can be ignored) and the last April’s liberation day tariffs (which were watered down sufficiently to be shrugged off). Why should the Israeli-US war with Iran be any different?

This view might still be correct. The Iranian regime is incentivized to survive, the US regime to seek an offramp. The Israeli incentives are more complex (it has less incentive to stop the war) but it probably will not have the final say.

But what if the shock is not fleeting? The Strait accounts for 20% of global oil and liquified natural gas supply, and Iran has basically throttled it. At some point (and maybe sooner than you think) economies will need to ration energy. Certain economies (including South Africa) are more exposed than others.

Are we then facing the big recession risk? Perineal bears (and those that called 2008 correctly) are once again getting column inches in the FT.

While the tail risk of a global recession) is clearly higher than it was two weeks ago, it is too soon to know if we are heading for one.

If this blows over, it blows over.

A more useful question perhaps (and this is indeed the argument of more thoughtful bears) is whether one thinks the global economy (and even South African for that matter) is becoming more or less fragile through the repeated shocks it has experienced over the past several years.

Fragile systems are systems are systems less likely to be able to shrug off the next shock. Anti-fragile systems grow stronger through repeated shocks.

The US economy is often regarded as the definition of anti-fragile. No matter what is thrown at it the US consumer always seems to bounce back. Even here though there are tentative signs in labour and credit markets that strains are starting to build. Could $5 a gallon pushes it over the edge?

The global trading and energy system looks more fragile, and the repeated shocks it has endured particularly at the hands of President Trump potentially more terminal. What are we building in its place? Last month I applauded the pragmatism of South Africa’s domestic policy in addressing key vulnerabilities but said our foreign policy remained largely rhetorical. If anything, events of the past few weeks have highlighted the need for foreign policy pragmatism to secure our interests and improve our resilience.

How much pain can you tolerate if geopolitical risks escalate? Will your portfolio be able to benefit from the inevitable mis-pricings if these fears prove overblown? To me this talks to the importance of taking a balanced and diversified view. The current crisis will create opportunities for your appointed asset managers to exploit, provided your overall portfolio is able to cope.