• Over the weekend, the United States launched airstrikes on three key Iranian nuclear sites, escalating tensions in the Middle East. While the full extent of the damage remains unclear, we expect Iran to retaliate, though likely in a manner aimed at avoiding deeper US involvement.
• Market reactions have been cautious, with modest declines in Asian and European stocks, while oil prices remain close to last week’s levels. Gold, the US dollar, and US bond yields have also seen little change compared to the previous week.
• Multiple scenarios remain possible, yet we believe the US will be reluctant to deepen its involvement but remain committed to maintaining deterrence. Israel is determined to neutralise Iran’s nuclear threat and is likely to pursue a regime change to ensure a less hostile government.
• Oil prices continue to reflect rising risks around Iran’s oil production. A potential closure of the Strait of Hormuz would pose significant risks to supply and prices, but in our view, a permanent loss of capacity is unlikely at this stage. We expect volatility to continue, but prices will likely revert towards fundamentals by year-end.
• With heightened geopolitical risks, we favour a well-diversified allocation, including hedges and exposure to commodities. While we continue to follow developments, we do not currently see reasons for a structural change in our economic outlook and reaffirm the views in our Mid Year Investment Outlook. 

You can now read the full whitepaper at the link below