Markets rattled by Middle East conflict

Markets are reacting to the outbreak of fighting in the Middle East, following US and Israeli strikes on Iran over the weekend.

Equities are lower this morning. Europe’s benchmark index - which hit fresh highs just days ago - fell by 2% in early trading, while the FTSE 100 slid by 1%. Energy and defence sector gains have been outweighed by declines among hotel groups, airlines and banks. The US stock market is also expected to open lower.

In contrast, the gold price is climbing again as investors seek out safe havens.  

• Get updates on markets, ISA funds, pension saving and much more

One asset looms above the rest, however: oil. Brent crude climbed by 10% in early trading to over $80 a barrel, before retreating slightly. The increase reflects uncertainty over how much oil will flow through the Strait of Hormuz, the narrow waterway linking the oil-rich Persian Gulf to the Arabian Sea. More than a fifth of global oil and liquefied natural gas (LNG) passes through this chokepoint. European gas prices are also higher.

Analysts are divided on where prices go next. Optimists note that recent oil spikes have been short lived, as regional conflicts have de-escalated quickly. The situation could also be eased by Opec+, a group of major oil producers led by Saudi Arabia, which has pledged to increase output from April.

However, others fear that fighting will spread across the Middle East and cause lasting damage.

Stubbornly high oil and gas prices could impact economies around the world. Specifically, they could be inflationary and disrupt plans to cut interest rates. The Bank of England is due to announce its next rate decision on 19 March. The bank has held several nail-biting votes in recent months, and conflict could complicate things further.

• Read: How far will interest rates fall?

For now, however, there is no certainty around what will happen to energy supplies or what this means for the global economy. As such, diversification and long-term thinking is more important than ever for investors.

• See our current offers to help your money go further

The great rotation

Iran will dominate the headlines this week. However, concerns about artificial intelligence continue to rumble beneath the surface.

For many years, technology giants fuelled the US stock market, driving returns and sucking in capital. Change is afoot in the world’s biggest market, however. Fears about artificial intelligence are mounting, and software stocks are bearing the brunt of this. Even dazzling results from Nvidia last week failed to halt the software sell-off, and the Nasdaq ended February with its biggest monthly loss since March 2025.

In these strange times, investors are instead turning to ‘heavy’ sectors like energy, basic materials and utilities. This has been christened the ‘halo’ trade: heavy asset, low obsolescence. Defence and energy stocks are also back in the spotlight.

• Read: Visions of a jobs apocalypse are greatly exaggerated

Spring Statement

Closer to home, the UK government is preparing to publish its Spring Statement on Tuesday. This is intended to be low-key affair, with no major policy changes are expected. Instead, we can expect the latest estimates for growth, unemployment, inflation, government spending and tax income. The news flow has been positive so far following higher-than-expected tax receipts at the start of the year.

Most eyes will be fixed on the Middle East this week, however, rather than Westminster.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: 5 stocks to watch in March
• Read: Which global index is best for you?
• Read: 3 small-cap funds for your ISA

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