Investors can ride out the storm of the Middle East oil crisis

Investors understand the old proverb about how to amuse God: tell Him your plans.

If you’d asked anyone at the start of the year about their investment strategy, they’d have said something about rotating out of the US, the end of American exceptionalism, and dollar weakness. Japan, emerging markets and Europe left Wall Street standing last year and were expected to do so again in 2026.

But in the week and a half since conflict returned to the Gulf, the pendulum has swung back again. America has become an unexpected safe haven. The markets have had the last laugh, for now at least.

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Between the close of play on Friday 27 February, the day before hostilities began, and Monday of this week, the S&P 500 barely blinked - falling by a trivial 1%. Our own FTSE 100, by contrast, was 6% down over the same six trading sessions, Europe fell 8%, Japan and emerging markets were both 10% lower, while Korea’s Kospi index shed 16%.

You don’t have to be an investment genius to work out why that should be. In the past five to ten years, America has become a net exporter of both oil and gas. In an irony that won’t be lost on the rest of the world, one of the few countries to benefit from the closure of the Strait of Hormuz, is the one that caused it.

The economies and markets that are paying the price for the latest Middle East oil crisis are the world’s big importers of energy, in Europe and Asia. They are the ones now fretting about inflation and rising, not falling, interest rates. We have been left hoping that President Trump’s willingness to tolerate higher petrol prices in a crucial election year is as fragile as it looked at the start of the week.

Within hours of the price of crude briefly hitting $120 a barrel on Monday, the President was suggesting his work was nearly done. Investors not unreasonably drew the conclusion that America’s appetite for a long, drawn-out fight is less than either Israel’s or Iran’s.

It is helpful to put the latest stock market wobble in context. Since the beginning of the year, the MSCI World index is flat. Shares in the UK, Japan and emerging markets are still in positive territory. Despite leading the falls, Korean stocks are nearly 25% higher than they were 10 weeks ago. Notwithstanding the echoes of 1979, no-one is yet queuing round the block for petrol.

It is, however, far too early to write this off as just another blip in an ongoing bull market. Unlike last year’s tariff tantrum, the resolution of this latest market wobble is not in the President’s hands. He might be looking for an early off-ramp, but he may well find that starting a war is easier than bringing it to a close.

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Today’s situation is altogether more fragile than it was a year ago. For one thing, markets are significantly higher than they were last April. There is, moreover, no simple or single solution to the combination of headwinds investors face - policy uncertainty, inflation, AI disruption and cracks in private credit markets.

A year ago, in the midst of the last bout of market turbulence, I recalled the Serenity Prayer: accept the things we cannot change; seek the courage to change the things we can; and ask for the wisdom to know the difference.

That remains a sensible strategy for navigating today’s volatile markets. My own inactivity was helped last week by watching events from the Italian alps. Acceptance of what we cannot change is easier admiring the Matterhorn from a chairlift than staring at a screen.

My composure was further helped by having fixed the roof while the sun was still shining. During the benign 11 months since the Liberation Day turbulence, I changed the things I could. It requires less courage when you’re rejigging winners.

I have always had a well-diversified portfolio, but I took advantage of market gains to further balance out my exposures. It is precisely because of unexpected shifts, like the temporary suspension of the rotation out of the US, that I favour a broad geographic spread of funds. It is why I pad out my portfolio with infrastructure, gold and real estate too.

In addition to holding a well-diversified portfolio, I have also set aside enough cash to allow me to do nothing when, as now, things get sticky. Only you can know how much is sufficient for you. For me, at the age of 62, it is a higher proportion of my overall portfolio than I would recommend to someone half my age - my grown-up kids, for example. It is a personal thing.

One of the few advantages of getting older is that you realise that this too will pass. I may be saddened by the circularity of events in the Middle East, but I am no longer surprised by it. Neither am I concerned by short-term retreats in stock markets. Over the past 100 years, the US stock market has been at least 5% below its most recent peak more than half the time. It has been at least 10% down a third of the time. And 20% below the last high a fifth of the time.

The volatility of shares is the price we pay for their outperformance of apparently safer, but less rewarding, assets like bonds or cash. Stocks have delivered an annual total return of 10% a year over the long run, twice that of bonds. Compounded up over an investing lifetime, that difference is more than enough compensation for occasional periods of turbulence.

No-one enjoys it when markets bounce around like this. But with preparation and acceptance, we can ride out the storm. So, have a plan. Just don’t make Him laugh; keep it to yourself.

This article was originally published in The Telegraph.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.