Recent Middle East developments, including a Hamas insurgency and Israel's declaration of war, have heightened concerns for both human welfare and geopolitical stability

Suspected Iranian involvement increases the risk of broader conflict. This note examines the situation's implications for investment portfolios.

Since the weekend both Oil prices and Gold have rallied, although not as much as one might have expected. In the current climate global economic demand continues to remain much more important than the conflict for the oil price, with demand continuing to weaken in the face of global rate rises. At this stage we think it’s unlikely the conflict will contribute significantly to “inflation pressure”, unless we see a massive trade embargo from Arab nations.  This also looks unlikely.  Compared to the 1973 Yom Kippur war, when an event like this last took place (which did result in an oil crisis), there is much less agreement and coordination amongst Arab nations. The world is also less dependent now on Arab oil, and less dependent on oil in general, at least in a relative sense.

In short, we see the risk of an oil led economic crisis arising from this conflict as unlikely at this stage.  We also don’t see any urgent need to adjust portfolios, however, we will continue to monitor events closely, and remain poised to act if required.