Impact of U.S. and Israeli Attacks on Iran

Over the weekend, negotiations between the U.S. and Iran evolved into a broader Middle Eastern military conflict. News reports state that coordinated U.S. and Israeli military operations may go on for several days. For investors, the ripple effects could extend to the global economy and financial markets, impacting growth, inflation, and monetary policy. Concerns regarding further escalation are valid as events are still unfolding. However, investors with a long-term view have historically weathered numerous historical market events, including wars, recessions, financial crises, and pandemics. Glenmede’s outlook on economic growth and earnings remains constructive, but we are vigilant given the evolving nature of geopolitical risks.

What Happened

• U.S. and Israel Strike Iran. Despite reports of ongoing negotiations with Iran, the U.S. and Israel conducted a joint operation over the weekend, striking multiple Iranian military and leadership targets. It has been reported that several senior leaders within Iran have been killed, including Ayatollah Ali Khamenei.
• Iran and Its Proxies Respond. In response, Iran launched counterattacks against U.S. military assets in Jordan, Qatar, Kuwait, Bahrain, and the United Arab Emirates (UAE). In addition, Iran moved to restrict the vital trading routes through the Strait of Hormuz and Iranian proxies in Yemen announced the closure of the Bab-el-Mandeb Strait with the intention to target U.S. and Israeli ships. The path forward for Iran’s political leadership remains unclear, as both domestic dynamics and escalation risks may shape the next phase of events.​

Why It Matters for Markets

• Limited First-Order Impacts. The direct impacts to global GDP and trade are likely limited. Iran’s share of world GDP is relatively small (~0.4%) and its export footprint has been constrained for years by sanctions that have limited its ability to fully monetize energy reserves. As a result, strikes confined to Iran alone are unlikely to significantly alter global growth outcomes.
• Second-Order Impacts: Energy Markets. Energy markets remain the primary channel for second-order effects. Iran still pumps roughly 3.5 million barrels per day (or 3.5% of global crude oil supply) despite sanctions, and market participants are already expecting a higher risk premium tied to supply uncertainty. More recently, supply has been outpacing demand, leading to inventory builds. In addition, OPEC could tap spare capacity to help mitigate short-term supply disruptions. Longer term, oil markets could be well supplied if production growth accelerates for Venezuela and Iran, two countries with very large oil reserves.
• Energy Assets Targeted? The scope of targeting matters for supply risks. Early indications suggest the strikes on Iran may have been broader than the operations seen last summer that more narrowly targeted nuclear facilities, raising the probability that energy infrastructure could be affected. In addition, Iran may target energy production assets in neighboring countries, which risks taking further capacity offline.
• Shipping Lanes in Focus. Maritime chokepoints are a key second-order transmission channel with potential interrelated effects on energy markets. The Strait of Hormuz handles roughly 25% global crude oil trade and about 20% of liquid natural gas flows, making it a focal point for markets. Separately, the Bab-el-Mandeb chokepoint accounts for roughly 12% of global trade flows, underscoring how regional instability can ripple through shipping costs and delivery times.
• Potential Mitigating Factors. There may be some logistical and policy buffers to an energy market shock, but both have limits. Saudi Arabia and the UAE maintain pipeline capacity that can reroute some exports around the Strait of Hormuz, but available infrastructure is insufficient to fully replace seaborne volumes. OPEC spare capacity could cushion a localized disruption to Iranian output, yet broader escalation affecting multiple regional producers (or a prolonged Strait closure) would be significantly more difficult to offset. Further, the U.S. economy is more insulated today than in the past with total energy consumption down to approximately 4% of total personal consumption.
• China: Key Consumer of Iranian Oil. More than 80% of Iran’s oil exports flow to China, which was also a major buyer of Venezuelan crude. This dynamic could influence both the durability of demand for sanctioned barrels and the degree of global price sensitivity. It may not be a coincidence that the administration is seeking additional economic pressure on China ahead of the upcoming Trump-Xi summit at the end of March.

Investment Implications

• Watch Macro Impacts from Energy. Ultimately, the trajectory of energy prices is likely to be the biggest knock-on effect from this weekend’s military action. Sustained increases in crude oil and natural gas prices would likely feed through to inflation expectations, consumer spending, and corporate margins. Conversely, if production and transit routes remain largely intact, market impacts may prove temporary and volatility-driven rather than growth-driven.
• Geopolitics and Investing. Geopolitical events have a long history of contributing to near-term volatility, but those disruptions typically do not have a sustained impact on the market’s longer-term growth trajectory. History is littered with numerous meaningful events that were seen as near cataclysmic at the time, but markets nevertheless seemed to eventually find their way back to their longer-term growth trend even after such events.
• Economic Viewpoints. While information is still fluid, Glenmede’s constructive economic growth forecast for 2026 remains unchanged. Inflation expectations may see upward pressure in the short term, driven by higher energy costs. However, inflation will likely not rise to a level that would materially change the current direction of monetary policy. Lastly, earnings growth looks constructive for most sectors of the U.S. economy, which is a vital component for capital market returns.

Jason Pride, CFA
Chief of Investment Strategy & Research, Glenmede

Michael Reynolds, CFA
Vice President, Investment Strategy, Glenmede