Oil jumps after US-Israel strikes on Iran – what investors should do now

Update (3 Mar 2026): The conflict has escalated further, with energy infrastructure now being targeted and disruptions at the Strait of Hormuz. This raises the probability of sustained supply disruption, increasing near-term upside risks to oil and keeping volatility elevated.

Previously (28 Feb 2026): Initial update following US-Israel strikes on Iran.

The trigger has finally been pulled.

After warning on 19 February that Iran must reach a deal over its nuclear programme within 10 to 15 days or face “really bad things,” President Donald Trump has now escalated the conflict. The US and Israel announced on Saturday that they have launched a “massive and ongoing operation” against Iran. Iran has also begun retaliatory missile strikes targeting US military bases in neighbouring Gulf Arab states.

Markets are now reacting to signs that disruption is moving from theory to practice. In recent days, there have been reports of disruption around the Strait of Hormuz. Data from Lloyd’s List Intelligence shows ship traffic at the strait is down more than 80% from the previous week since the US and Israeli bombings began. Iran has also threatened to attack ships crossing the Strait. Compounding this, leading maritime insurers have cancelled war-risk cover for vessels operating in the Gulf, further discouraging shipowners from traversing the route.

Energy infrastructure has also come under attack. QatarEnergy has suspended liquefied natural gas (LNG) production following a drone attack. Retaliatory drone strikes on Saudi Aramco’s Ras Tanura refinery have also highlighted the vulnerability of the region’s remaining infrastructure – and may have been warning shots rather than the end of escalation.

The risk is that the conflict broadens further. Gulf states are reportedly close to ending their neutrality in response to Tehran’s repeated “reckless and indiscriminate attacks” on their territory and infrastructure. Europe is also being pulled in. An Iranian strike on Abu Dhabi hit a French naval base, and on 1 March, after missiles flew towards Cyprus, UK Prime Minister Keir Starmer said he would allow the US to use British airbases.

Taken together, these developments raise the probability of sustained supply disruption, increasing near-term upside risks to oil and keeping volatility elevated. As at the time of writing, Brent crude – the global benchmark for oil prices – has climbed above USD 78 per barrel, its highest level since August 2025.

What happens next?

The key market question is whether this develops into a sustained disruption to production or shipping. A limited strike or short confrontation may only create temporary volatility. But a broader regional conflict that damages oil infrastructure or threatens Gulf shipping routes could push oil sharply higher – potentially above USD 100 per barrel.

Such a scenario would ripple across markets:

• Energy: Oil would surge immediately, especially if the Strait of Hormuz – which handles roughly 20% of global seaborne oil – is threatened.

• Inflation: Higher oil prices would push inflation higher. This could force central banks to delay or abandon plans to cut interest rates.

• Equity markets: Global stocks would likely sell off, with high-growth sectors such as technology particularly vulnerable. Asian markets may face additional pressure due to their dependence on imported energy and global trade routes.

• Safe havens: Investors typically move toward gold in periods of geopolitical stress. Gold has already shown signs of this behaviour, rising on recent tensions.

This is still not our base case, but the probability has risen, and markets will remain sensitive to evidence of sustained disruption.

Why we don’t expect a sustained oil rally

The key question now is duration. If disruption proves sustained, oil can stay elevated. If disruption is contained, risk premiums typically fade as supply adjusts. Our view rests on three points: incentives, buffers, and fundamentals.

1. Incentives still discourage an “energy shock” endgame

A full-scale escalation would likely be damaging for both sides.

While President Trump’s threat to strike Iran can no longer be viewed purely as a negotiating tactic given the latest strikes, he is also unlikely to tolerate a sustained rise in crude prices, given the economic and political implications of higher energy costs, particularly heading into what could be a challenging mid-term election cycle for his Republican Party.

From Iran’s perspective, disrupting the Strait of Hormuz would be equally damaging. Such a move would effectively choke off its own exports while restricting access to critical imports, severely hurting its economy. It would also strain relations with China – Iran’s most powerful ally – which relies heavily on Gulf oil supplies.

While the conflict has undoubtedly escalated, these structural boundaries remain intact. Neither side has a strategic incentive to trigger a full-scale energy market meltdown. There are reasons to believe both sides will still try to avoid a total disruption to global energy flows.

That said, we acknowledge that miscalculation risk has now risen sharply.

2. Supply buffers can cushion shocks

Even if oil flows are disrupted, there are mitigating buffers.

OPEC retains significant spare capacity that can be deployed to fill supply gaps. Major global players, including the US and China, also hold sizeable Strategic Petroleum Reserves (SPR) that can be released to blunt a sudden physical deficit.

In other words, the market has shock absorbers. They do not eliminate volatility, but they can limit how long a spike persists.

3. Medium-term fundamentals still look soft

While oil prices in the near-term will be driven by disruption headlines and evidence of actual supply loss, fundamentals remain the medium-term anchor for prices.

Global oil demand growth is moderating, with China’s economic slowdown continuing to weigh on the outlook. While policy support may help stabilise growth, we expect an incremental recovery rather than a surge strong enough to materially tighten the global oil balance.

China’s oil demand is also facing a longer-term structural headwind as renewable capacity expands and electric vehicle adoption accelerates.

Reflecting this softer demand outlook, the International Energy Agency revised its 2026 oil demand growth forecast down to around 850,000 barrels per day. Notably, this follows an upward revision just last month, underscoring how quickly expectations around the demand outlook are shifting.

What investors should do now

Geopolitical shocks can drive short-term volatility, but portfolio decisions should be guided by longer-term fundamentals rather than headlines. The real question is not whether oil rises next week, but how portfolios should be positioned regardless of what happens next.

We previously advised investors against chasing the oil price rally. Given the significant escalation in the conflict, we now believe that oil exposure can serve as a tactical hedge in the short-term. The key is sizing and rules: keep it small, treat it as insurance rather than a core allocation, and be prepared to trim if the position rallies sharply or if disruption risks fade.

For investors looking for energy exposure, we recommend the State Street Energy Select Sector SPDR ETF (NYSE:XLE). For futures-based ETFs, the WisdomTree Brent Crude Oil (LSE:BRNT) is a relatively cost-efficient way to get exposure to daily oil price movements.

For long-term investors, the focus should still be on areas where earnings visibility remains strong and structural growth drivers are intact. These markets are supported by longer-term structural trends that are likely to persist beyond the current bout of volatility.

One such area is the internet sector. After recent pullbacks, valuations across major internet companies have become more reasonable, even as long-term growth drivers remain intact. Investors seeking diversified exposure may consider the Invesco NASDAQ Internet ETF (NASDAQ:PNQI), which provides broad access to leading internet companies.

Investors may also benefit from diversifying into markets where structural improvements are unfolding and valuations remain more attractive.

Japan continues to benefit from corporate reforms and improving profitability, supporting long-term equity returns. Value-oriented strategies, such as Eastspring Investments - Japan Dynamic AS SGD, are relatively well cushioned against potential near-term volatility due to their disciplined valuation approach. At the same time, the fund maintains meaningful exposure to Japanese small-cap companies, offering investors access to domestically driven, resilient businesses that remain undervalued relative to large caps as the rally broadens.

Europe offers another layer of diversification. Unlike the US, which is heavily concentrated in technology, Europe offers meaningful exposure to financials, industrials, healthcare, energy – sectors that tend to perform differently across market cycles and can help smooth portfolio volatility. For a low-cost, diversified way to access this opportunity, we recommend the Vanguard FTSE Europe ETF (NYSE:VGK).

Closer to home, Asia continues to present compelling structural opportunities. Singapore equities, after several years of muted performance, are beginning to benefit from stronger earnings visibility and policy initiatives aimed at improving market depth. This could mark the early phase of a multi-year recovery.

China also remains a long-term earnings story, with policy support for innovation and private-sector growth strengthening, while leading companies are becoming increasingly competitive globally. Meanwhile, Asian semiconductor firms offer a more valuation-disciplined way to participate in the ongoing AI boom, supported by strong pricing power and sustained demand visibility.

Ultimately, the goal is not to predict oil prices, but to build portfolios resilient enough to weather what comes next.

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Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds positions in iShares Hang Seng Tech ETF and Global X Asia Semiconductor ETF.