WisdomTree : Strait of Hormuz Risk Reprices Global Markets

Reports of the killing of Supreme Leader Ayatollah Ali Khamenei have plunged the Islamic Republic into its most severe crisis since the 1979 Revolution.

President Trump has indicated the conflict could last weeks, while Iran’s security leadership has ruled out negotiations. Tehran’s retaliation — including strikes on United States and Israeli military bases across the region — is increasingly contributing to its isolation. Civilian casualties, economic disruption and damage to regional infrastructure are unlikely to improve its diplomatic position.

Retaliation from Iran was always expected. However, the scale and breadth of the response appear greater than many observers anticipated. Attacks have not been confined to military targets, extending instead to energy infrastructure in neighbouring countries.

We are likely closer to the beginning of this conflict than the end. Duration and scope will determine how many asset classes are ultimately affected and how significant the pricing impact becomes.

Safe Havens

Gold has a long history of sensitivity to geopolitical stress. At the market open on Monday, 2 March 2026, gold moved sharply higher. Although it has pared some of its initial gains, we believe the metal retains further upside potential if tensions persist or escalate.

In January 2026, gold responded strongly to geopolitical developments in Venezuela and Greenland. The current conflict carries significantly broader global implications, suggesting the initial move may not fully reflect the underlying risk.

Silver rallied strongly ahead of the weekend’s escalation but was posting intraday losses by the afternoon of 2 March 2026. The divergence between gold and silver is notable. Gold functions primarily as a defensive asset, whereas silver has greater industrial exposure. While silver can act as a higher-beta expression of gold, gold has historically proven the more reliable geopolitical hedge.

Oil

Iran produces approximately 3 million barrels per day (around 3% of global supply). A full disruption would represent a meaningful supply shock. However, sanctions have constrained Iran’s customer base. China — its largest buyer — has reportedly been stockpiling oil for over a year, with storage levels elevated.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) has announced a production increase of 206,000 barrels per day in April, equivalent to roughly 0.2% of global supply — significantly less than potential Iranian losses. That said, the group retains additional spare capacity and may act flexibly if disruptions intensify.

The greater structural risk lies with the Strait of Hormuz — the world’s most critical oil chokepoint. Approximately 14 million barrels per day (around 32% of global seaborne crude) transit the Strait. Any meaningful disruption to flows would likely trigger a substantial supply shock. Some tankers are reportedly rerouting, while war-risk insurance premiums are rising, discouraging shipments.

Importantly, a physical closure of the Strait is not required to disrupt markets. Iran may lack the naval capacity to fully block the waterway, but escalating war-risk premiums can act as a de facto constraint on flows. If attacks on shipping increase, insurance costs could rise sharply, making transit prohibitively expensive. In such a scenario, oil prices would need to adjust higher to compensate for the increased cost of transport — effectively creating a “war premium spiral.”

So far, these dynamics remain contained. That may change if the conflict endures.

Iran’s attack on facilities such as Ras Tanura in Saudi Arabia underscores a willingness to expand the conflict into the economic sphere by targeting energy infrastructure. While initial damage appears contained and loadings continue, the risk of further attacks remains elevated.

Natural Gas

Liquefied natural gas (LNG) exports from Qatar and the United Arab Emirates (UAE) — accounting for roughly 20% of global LNG supply last year — must transit the Strait of Hormuz. Disruption would therefore have global implications.

Following military strikes on QatarEnergy facilities in Ras Laffan Industrial City and Mesaieed Industrial City, QatarEnergy announced a halt to LNG production and associated products. Even temporary outages significantly tighten global balances.

Although most LNG cargoes are directed toward Asia, price spikes in Asian markets would intensify competition for alternative supply, driving European prices higher. European gas storage levels are relatively low for this time of year. While winter is nearing its end, further cold spells cannot be ruled out.

The Title Transfer Facility (TTF), Europe’s benchmark natural gas contract, rose more than 50% intraday on 2 March 2026 before retracing part of the move. Further disruption could drive renewed volatility.

Defence

Defence stocks are outperforming amid expectations of sustained increases in military spending. The WisdomTree Europe Defence UCITS Index was up 0.7% by 11am on 2 March 2026, contrasting with the broader equity sell-off (Euro Stoxx 50 Index -1.9%).

Although the military engagement is led by the United States and Israel, beneficiaries are likely to extend beyond those markets. The Trump administration has emphasised expanding defence production capacity rather than prioritising shareholder distributions. European and Asian (excluding Chinese) contractors — particularly those focused on drones, missile interception systems and detection technologies — may see increased demand.

A prolonged conflict would reinforce expectations of structurally higher defence expenditure across multiple regions.

Timelines Matter

The duration of the conflict will be critical in determining the breadth and persistence of its market impact.

Heavy-asset, low-obsolescence (“HALO”) companies — businesses with substantial physical capital and long-lived economic relevance, such as utilities, infrastructure operators, energy producers and transport firms — may prove relatively resilient. These companies are less exposed to rapid technological displacement and often provide essential inputs for energy systems and defence supply chains.

On the first trading day of the conflict, oil outpaced gold. However, the fact that Brent crude has not yet sustainably broken above $80 per barrel suggests that existing inventory overhangs are providing a temporary cushion. Should the conflict persist or broaden, we would expect risk premia to build further — with gold potentially expressing geopolitical stress more decisively in the weeks ahead.

We remain in the early stages of what could become a prolonged conflict. Its duration and geographic scope will ultimately determine the scale and persistence of price moves across commodities, equities and broader risk assets.