Middle East first take 

Over the weekend, the geopolitical landscape shifted dramatically following a massive joint military operation by the United States and Israel against Iran.

On Saturday, February 28th, US and Israeli strikes targeted high-level Iranian officials and military infrastructure, which led to the death of their Supreme Leader and several high-level officials. Iran's response was not measured compared to their response to the last missile attack from the US over the summer of 2025. Iran responded with drone and missile strikes targeting civil and military sites in Israel and several neighbouring Gulf nations, including Bahrain, Kuwait, and the UAE, leading to the closure of major regional airspaces and the suspension of thousands of international flights. 

The most significant risk to the global economy is the Strait of Hormuz, where roughly 20-30% of the world’s oil passes through a narrow waterway, making it highly vulnerable to attack. Despite Iran suggesting the Strait of Hormuz remains open, on Sunday, three vessels were attacked, and insurers have cancelled or increased prices to levels that make travel too risky or unaffordable. The Gulf nations, the US and the West will be highly motivated to get the pass 'open', leaving the Iranian regime increasingly isolated. 

If the conflict is contained, traffic through the Strait of Hormuz resumes. We expect a geopolitical risk premium on oil given elevated tensions, but not serious inflationary pressure. However, if it remains closed, we will likely see a supply shock that pushes oil toward $100/bbl, reigniting global inflation concerns and complicating the path for central bank interest rate cuts, mirroring the 1970s oil shock environment. One key difference from the early 1970s is that Opec was responsible for the embargo, whereas now they are actively against it and criticising Iran. In response to the disruption, we have seen Opec+ announce a production increase of 206,000 barrels a day, but the US has thus far ruled out using its strategic petroleum reserves, suggesting that the US feels comfortable the Straits will be reopened in short order. 

What happens next is hard to say, as the situation is still unfolding. As it stands, the US wants regime change and is actively encouraging Iranians to overthrow the current regime. This would likely have to be led by the Iranian military, deciding that enough is enough. That being said, Trump's past actions suggest he can swiftly change his mind (TACO), and the regime could negotiate terms that Trump finds acceptable. The risk remains that the current regime digs in and fights on. 

Now, while the headlines are distressing, we believe we are relatively well-positioned across our portfolios to weather this storm. The futures market is down, but historically, war-driven selloffs have been good buying opportunities for long-term investors. We have exposure to oil, via our investment into Shell. We recently purchased a position in IHI in Japan, which will benefit from an increase in global defence spending. Our real asset allocation has over 10% in gold and gold miners, benefiting from a flight to safety, and an overall allocation ranging from 20-30% to commodities. The portfolios continue to have a material allocation to the US Dollar, which is rising as investors flock to safe assets. Your portfolios also hold the protection strategy at a 1-1.5% weight, which we expect to perform if volatility spikes aggressively and equities drop significantly in short order. 

Bottom Line: We are operating in a period of elevated geopolitical uncertainty. Our priority is to ensure that short-term geopolitical shocks do not compromise long-term investment objectives. We seek to deliver consistent, risk-adjusted returns over the medium to long-term through diversification across equities, fixed income and real assets, complemented by the selective use of downside protection strategies.