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Pressure to shape Mideast conflict
Weekly video_20260316
Ehsan Khoman
Economist, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
The key issue is whether the sharp drop in shipping through the Strait of Hormuz lasts long enough to induce stagflation. We see a feedback loop between markets and geopolitics: the conflict boosts oil and gas prices, but the political and economic strain from higher prices may limit how long the conflict lasts.
Title slide: Pressures to shape Mideast conflict
1: A historic supply disruption
Shipping traffic through the Strait of Hormuz has plummeted due to attacks on energy transport and facilities in the Persian Gulf. Oil and gas prices have surged.
This goes beyond spiking prices. It’s a supply shock to energy flows with spillover risks to the broader economy.
2: Regional vulnerabilities
That said, the impact varies by region. Equity markets in Europe and Asia have fared worse than the US since the conflict began. They import much of their energy from the Gulf, while the US has strong domestic supply – helping insulate it from the shock.
3: Markets and geopolitics
We see a feedback loop at work: the conflict is driving prices, but prices could shape the conflict – and potentially lead to de-escalation. Limiting shipping gives Iran leverage, but it also hurts them economically. Higher US gas prices, meanwhile, may heighten political sensitivity.
We think risk assets could recover over a six-to-12-month horizon if a clear end to the conflict emerges. In the meantime, we favor US assets.
Outro: Here’s our Market take
A protracted conflict could tighten financial conditions and raise stagflation risks. Yet the same pressures driving the energy shock could also catalyze de-escalation.
Closing frame: Read details: blackrock.com/weekly-commentary
A potentially sustained shock
Markets are grappling with the potential for a sustained shock to energy flows – but we think rising economic and political pressures could limit the disruption.
Market backdrop
Brent crude oil settled around $100 after historic volatility. Major government bond yields jumped, while stocks slumped with the US outperforming.
Week ahead
Central banks, including the Fed, are expected to hold rates steady. We look to updated economic projections for any signs of their view on the energy shock.
The Mideast conflict has effectively closed the Strait of Hormuz – a world energy chokepoint – and is rippling out across markets and supply chains. We think this is a visible global macro shock no matter the endgame, with higher inflation and bond yields. Yet if the closure drags on, we think a feedback loop could emerge: the conflict drives prices, but the political and economic fallout could limit the conflict. We prefer US stocks and see classic portfolio diversifiers as challenged.
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Shipping stoppage
Daily Strait of Hormuz voyages, Feb.-March 2026
Source: BlackRock Investment Institute with data from IMF PortWatch, Lloyd's List, Seasearcher and BlackRock Hormuz Strait Dashboard, March 2026. Notes: General trade includes containers, general cargo and roll-on/roll-off ships. Shadow voyages are estimates inferred from ships sending at least one AIS ping inside the Persian Gulf since the outbreak of the conflict on Feb. 28.
The flow of energy and goods through the Strait of Hormuz – the conduit for a fifth of the world’s oil and liquefied natural gas (LNG) – is key for how this feedback loop plays out. A record release of about 400 million reserve barrels by the International Energy Agency gave limited relief to oil prices. Yet the conflict drives more than just energy prices. The supply chain shock ups production costs, hurting growth. It also exacerbates pre-existing inflationary pressures and pushes up yields – making it harder for investors and central banks to ignore those pressures. The longer supply is disrupted, the greater the global macro impact. That’s why we monitor directly for any signs of shipping activity. See the chart. A tool from our Fundamental Equities team tracks observable and “shadow” traffic – ships with their transponders off. As of Sunday, weekly voyages are around 7% of their previous 12-month average.
We see the impacts of conflict-driven energy price spikes playing out very differently across different regions. A key difference in oil and LNG makes North Asia particularly vulnerable, we think. Oil can be re-routed, but LNG is tied to regional infrastructure – and North Asia relies on strait imports for both. Our analysis shows that Japan, for example, gets about 70-90% of its oil and about 10-15% of its LNG via the strait. Some Asian countries are stockpiling – a move that shrinks supply and may amplify volatility. Europe is also exposed, with the supply shock from a months-long strait closure potentially twice that in the US Only about 4-8% of the US’s oil comes from the strait – far less than major economies like France, Italy and Germany (roughly 20-45%). We see this reflected in performance: equities in Europe and Asia have fallen more than the US.
Energy infrastructure in focus
But here the other part of the feedback loop kicks in: knock-on effects like this create economic and political pressures for de-escalation. We saw this play out in one day last Monday. Oil experienced its sharpest intraday swing on record after US President Donald Trump said the war could end “very soon.” Brent crude oil has since surged back around $100 as Iran’s strikes on energy shipping and facilities intensified. Limiting strait shipping gives Iran leverage but hurts them economically – an incentive to end the conflict. Growing frustration with higher gas prices in the US could also act as an incentive. If current crude oil prices persist for six months, we see a notable drag on global growth and boost to inflation.
There are few places to hide from this near-term supply shock in our view. Government bonds and gold are not providing ballast as equities fall. That’s because – as we’ve long said – investors are demanding more compensation for the risk of holding long-term bonds given persistent inflation and high debt levels. This latest supply shock only intensifies that dynamic, flipping the recent market narrative on disinflation and putting more upward pressure on bond yields. Yet over a six to 12-month horizon, we think risk assets could recover if an endgame emerges. We still prefer US equities on the AI theme. We also like emerging market hard currency debt, where indexes lean towards commodity exporters like Brazil.
Our bottom line
What matters is the duration of the conflict – and the knock-on impact to supply chains. Our tactical views hinge on the strait reopening in a few weeks due to economic and political pressures, even if we see a near-term deterioration.
Market backdrop
Brent crude ended the week above $100 a barrel after a historically large intraday swing last Monday on hopes of a near-term resolution to the Mideast conflict. Markets expect prices to decline by year-end, indicating optimism for a nearer-term resolution. European natural gas prices are up about 60% since the day before US-Israeli strikes on Iran. The S&P 500 fell roughly 2% on the week, with government bonds offering little refuge: 10-year US Treasury yields rose to 4.28%.
We eye how major central banks respond to the energy shock from the Mideast conflict – especially given the sharp shift in pricing to potential rate hikes from rate cuts apart from the Federal Reserve. The consensus expects all major central banks including the Fed to keep rates on hold this week. We will watch updated economic projections on how they are viewing the energy shock on policy.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of March 13, 2026. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.
March 16
US Empire State survey
March 18
Federal Reserve policy decision; Bank of Japan policy decision
March 19
Bank of England policy decision; ECB policy decision
March 20
Euro area trade balance
Read our past weekly commentaries here.
Big calls
Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, March 2026
| Reasons | ||
|---|---|---|
| Tactical | ||
| Still favor AI | We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to US equities. | |
| Select international exposures | We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy. | |
| Evolving diversifiers | We suggest looking for a “plan B” portfolio hedge as long-dated US Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge. | |
| Strategic | ||
| Portfolio construction | We favor a scenario-based approach as AI winners and losers emerge. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces. | |
| Infrastructure equity and private credit | We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection. | |
| Beyond market cap benchmarks | We get granular in public markets. We favor DM government bonds outside the US Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook. | |
Note: Views are from a US dollar perspective, March 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.
Tactical granular views
Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2026
We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.
| Asset | Tactical view | Commentary | ||||
|---|---|---|---|---|---|---|
| Developed markets | ||||||
| United States |  |
We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front. | ||||
| Europe |  |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||||
| UK | |
We are neutral. Valuations remain attractive relative to the US, but we see few near-term catalysts to trigger a shift. | ||||
| Japan | |
We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities. | ||||
| Emerging markets | |
We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam. | ||||
| China | |
We are neutral. Trade relations with the US have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view. | ||||
| Fixed income | ||||||
| Short US Treasuries | |
We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the US policy rate. | ||||
| Long US Treasuries |  |
We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term. | ||||
| Global inflation-linked bonds | |
We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools. | ||||
| Euro area government bonds | |
We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany. | ||||
| UK Gilts | |
We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility. | ||||
| Japanese government bonds |  |
We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further. | ||||
| China government bonds | |
We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside. | ||||
| US agency MBS | |
We are overweight. Agency MBS offer higher income than Treasuries with similar risk and may offer more diversification amid fiscal and inflationary pressures. | ||||
| Short-term IG credit | |
We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into US Treasuries as the Fed cuts. | ||||
| Long-term IG credit | |
We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds. | ||||
| Global high yield | |
We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase. | ||||
| Asia credit | |
We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight. | ||||
| Emerging hard currency | |
We are overweight. A weaker US dollar, lower US rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds. | ||||
| Emerging local currency | |
We are neutral. A weaker US dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist. | ||||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a US dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
Euro-denominated tactical granular views
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2026
| Asset | Tactical view | Commentary | ||
|---|---|---|---|---|
| Equities | ||||
| Europe ex UK | |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||
| Germany | |
We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany. | ||
| France | |
We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations. | ||
| Italy | |
We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out. | ||
| Spain | |
We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive. | ||
| Netherlands | |
We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers. | ||
| Switzerland |  |
We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance. | ||
| UK | |
We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift. | ||
| Fixed income | ||||
| Euro area government bonds | |
We are neutral. Yields are attractive, and term premium has risen closer to our expectations relative to US Treasuries. Peripheral bond yields have converged closer to core yields. | ||
| German bunds | |
We are neutral. Potential fiscal stimulus and bond issuance could push yields up, but we think market pricing reflects this possibility. Market expectations for near-term policy rates are also aligned with our view. | ||
| French OATs | |
We are neutral. France faces continued challenges from elevated political uncertainty, high budget deficits and slow structural reforms, but these risks already seem priced into OATs and we don’t expect a worsening from here. | ||
| Italian BTPs | |
We are neutral. The spread over German bunds looks tight given its large budget deficits and growing public debt. Domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields. Domestic political pushback likely prevents defense spending from rising to levels that would resurface fiscal stability concerns. | ||
| UK gilts | |
We are neutral. Gilt yields are off their highs, but we expect more market attention on long-term yields through the government’s November budget, given the difficulty it has had implementing spending cuts. | ||
| Swiss government bonds | |
We are neutral. Markets are expecting policy rates to return to negative territory, which we deem unlikely. | ||
| European inflation-protected securities | |
We are neutral. We see higher medium-term inflation, but inflation expectations are firmly anchored. Cooling inflation and uncertain growth may matter more near term. | ||
| European investment grade | |
We are neutral on European investment grade credit, favoring short- to medium-term paper for quality income. We prefer European investment grade over the US Quality-adjusted spreads have tightened significantly relative to the US, but they remain wider, and we see potential for further convergence. | ||
| European high yield | |
We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality and less sensitivity to interest rate swings compared with the US Spreads adequately compensate for the risk of a potential rise in defaults, in our view. | ||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, March 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
Meet the authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Paolo Puggioni
Head — Fundamental Equities Data Analytics, BlackRock
Ehsan Khoman
Economist — BlackRock Investment Institute
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