NEWS + VIEWS – 27/03/2026
MARKETS
Global share markets have been driven primarily by escalating geopolitical tensions in the Middle East. Disruptions around the Strait of Hormuz have pushed oil prices sharply higher, fuelling fears of energy-driven inflation and slower growth. Major markets like the US, Europe and Asia have fallen, with investors rotating toward cash amid heightened uncertainty and volatility.
In Australia, the surge in oil and fuel costs is lifting inflation expectations and increasing the likelihood of further Reserve Bank interest rate hikes. The market has been dragged lower by energy-related disruptions, while broader economic concerns like rising input costs for manufacturers and supply chain pressures are hurting business sentiment.
HOW WILL THE IRAN WAR PLAY OUT?
We are now into the fourth week of the Iran war with no clear sign of a resolution despite Trump’s frequent reassurances that the end is near. AMP Chief Economist Shane Oliver points out a problem is that Trump indicated regime change was a goal, along with several military objectives. The killing of Iran’s leaders and attempting to replicate the Venezuelan model appear to confirm this. Iran predictably responded by attacking regional oil and gas infrastructure and effectively closing the Strait of Hormuz, which has potentially created the biggest oil shock in history.
By declaring that the war would be over ‘very soon’ on March 9 and that he was considering ‘winding down’ the war on March 20, both after sharp oil price rises, Trump has signalled that he cannot bear the full economic and political costs of the war. So just like his TACO (Trump Always Chickens Out) back down on tariffs last year, many assume that he will do the same this time, which is why the rise in oil prices and fall in share prices has so far been relatively mild. For example, global oil prices are up just 90% from their January low (compared to three or four fold increases from the 1970s oil shocks that were arguably smaller) while US shares have fallen only -6% and Australian shares -7%, which are smaller declines than last year’s tariff related slump.
The Iranian leadership is showing no sign of waving a white flag and in fighting for survival wants to inflict maximum economic and political pain on Trump by restricting oil supplies, which makes it more difficult for him to perform a TACO. There are various workarounds to the Strait blockage - Saudi Arabia’s pipeline to the Red Sea, stockpile releases, US naval escorts, and Iran allowing non-enemy ships through, However, the US doesn’t have the capacity to defend every tanker and if Iran lets too many ships pass, it will weaken its leverage.
Despite confusing comments from Trump, the risk is further escalation with a consideration of deploying troops and threats to obliterate Iran’s power plants. Iran is threatening more retaliation against energy infrastructure in response. Previous oil shocks unfolded over months as the impact became clearer - four months in 1973-74 and more than a year in 1979-80 - so it’s early days. The threat of stagflation remains and at a time of various other concerns around AI, private credit and stretched valuations.
Oliver’s base case is that the war and oil shock will be relatively short as Iran will not be able to keep the Strait closed indefinitely and Trump will look for an off ramp as political pressure builds ahead of the US midterm elections. Trying to work out how all this plays out is not easy but looking at share markets around major geopolitical events, the typical playout is for a sharp fall of around -8% and then a recovery over the next 12 months of around 14%. Of course, there are wide ranges around this trend.
THE WALL OF WORRY
There is always something for investors to worry about and this has certainly been the case since Trump returned to the White House with his contradictory and confusing utterances. However, the global economy has had plenty of worries in the past, but it got over them with Australian shares returning 11.6% p.a. since 1900 and US shares 10% p.a. in a broad rising trend. The chart below shows how the All Ordinaries index has performed since 1900.
Source: AMP
Most of the time share markets are relatively calm, but periodically they tumble and generate headlines like ‘billions wiped off share market.’ Worries are normal around the economy and investments, and sometimes they become intense - like now with the US and Israel waging war on Iran - but they eventually pass.
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