While the war in the Middle East is devastating lives and will have lasting geopolitical consequences, market commentators do not believe that the high oil prices will have a negative impact on markets.

They do believe that now is not the time to panic.

Despite the reawakened fears of inflation as energy prices rocket, data suggests that modern markets are far more resilient to oil price shocks than they were during the crises of the 1970s.

A different era of energy

Both Sean Neethling, Head of Investments at Morningstar Investment Management, and Manpreet Gill, CIO for Africa, Middle East, and Europe at Standard Chartered’s Wealth Solutions, argue that we are not witnessing a sequel to the stagflation of the 1970s.

In that era, oil prices nearly quadrupled, leading to global fuel shortages. Today, the global economy is significantly less sensitive to moves in the oil price.

This is due to several structural shifts:

• Decreased energy intensity: The amount of oil required to generate one unit of global GDP has fallen by approximately 58% since 1970.
• Energy independence and renewables: The United States has transformed from an energy importer to an exporter due to the shale revolution, while renewable energy now meets a much larger portion of global electricity and transport needs.
• Technological efficiency: Advances in technology have made economies more energy-efficient, with the specific exception of power-hungry AI.
• Higher impact threshold: S&P Global estimates that oil prices would need to reach the $150–$200 range to match the macroeconomic impact of historical shocks.

Market reactions and central bank vigilance

The market response has been uneven. While Asian equities have faced volatility, the pullback in US equities has remained relatively muted.

Neethling notes that South African markets have already priced in potential interest rate hikes toward the end of the year due to a weaker rand and higher oil prices.

However, inflation is currently better “anchored” than in the past. Factors such as Chinese overproduction, the disinflationary impact of AI, and renewed vigilance by central banks are keeping global prices in check.

Furthermore, interest rates are currently at more sustainable levels, which limits the need for the massive, aggressive rate hikes seen in previous decades.

Strategies for investors: hedging and opportunity

Rather than reacting with panic, both experts suggest a dual approach of hedging risks while looking for value.

Hedges against uncertainty

• Inflation protection: Holding inflation-linked or inflation-protected bonds
• Energy exposure: Investing in oil-correlated equities or energy-sector stocks
• Diversifiers: Utilising gold, defensive industries that are less impacted by business cycles, and liquid alternative investment strategies

Looking for value

Manpreet Gill suggests that if energy supply disruptions prove short-lived, certain asset classes may post a strong rebound, which presents a “bargain-hunting” opportunity.

Specifically, Asian equities are highlighted as a top “shopping list” item, as they have fallen significantly and may offer a strong recovery once downside risks are priced out.

Ultimately, the consensus – as it always is in times of market volatility and political uncertainty – is to remain invested in a well-diversified portfolio.

As Neethling concludes, the goal is to review portfolio readiness for a range of scenarios, knowing that while uncertainty is high, every crisis eventually creates new opportunities for the disciplined investor.