The recent escalation between Iran and Israel has understandably caused concern. When headlines are full of talk about war, oil and markets, it’s natural to wonder:

• “Should I be changing my investments?”
• “Is this the start of something bigger?”
• “Is my retirement income at risk?”

In this article, I set out the brief background, what’s happened so far, how markets have responded, and why our investment approach – including our drawdown “two‑pot” strategy – remains firmly in place.

 

Background: Why This Conflict Matters

Tensions between Iran and Israel have been building for many years. Key drivers include:

• Regional rivalry – competing interests and alliances across the Middle East.
• Support for proxy groups – Iran backs organisations that are hostile to Israel.
• Nuclear concerns – Israel and Western governments are worried about Iran’s nuclear ambitions.

There have been many indirect clashes over time, but markets are paying closer attention now because recent military actions between the two have been more open and direct.

 

What Has Actually Happened?

In simple terms:

• We’ve seen a sharp escalation in rhetoric and military action.
• There have been direct attacks and responses, not just activity via proxies.
• The situation is fast-moving, and the range of possible outcomes is wide.

News coverage naturally focuses on worst-case scenarios. Markets, however, tend to weigh a range of possibilities. So far, they do not appear to be pricing in the most extreme outcomes.

 

How Have Markets Responded?

Despite dramatic headlines, market behaviour has been relatively measured:

• Shares have been volatile, but not in a sustained collapse.
• Bonds and safe-haven assets like gold have seen some buying.
• Currencies have moved, but without the stress we see in full-blown financial crises.

In other words, markets are alert but not in panic mode. This is consistent with history: markets live with geopolitical risk at all times. They may react sharply at first, but eventually refocus on fundamentals such as economic growth, company profits, interest rates and inflation.

 

Oil Prices and the Economic Impact

The Middle East is a key source of global oil, so any regional conflict raises the question: What happens to energy prices?

So far, oil prices have risen at times on fears of supply disruption, but we haven’t seen an extreme, sustained spike. Higher oil prices can:

• Push up inflation (fuel and transport costs), and
• Dampen economic growth, as households and businesses pay more for energy.

These effects are usually temporary and tend to be absorbed over time. For diversified investors:

• Some holdings (e.g. energy companies and defence/aerospace holdings) can benefit from higher oil prices and from increased defence spending.
• Other areas may struggle for a while.
• Overall, a well-diversified portfolio spreads these effects.

 

We’ve Been Here Before

Recent history is full of worrying events:

• The war in Ukraine
• Covid‑19 and global lockdowns
• The US–China trade war
• The Global Financial Crisis in 2008, and many others

At the time, each event felt unique and alarming. Yet markets have repeatedly recovered, and long-term investors who stayed invested have tended to be rewarded.

Trying to “get out and back in” around such events is extremely difficult:

• You must be right twice – when to sell and when to buy back.
• Markets often rebound before the news improves.
• Missing just a few strong days can significantly reduce long-term returns.

Our philosophy recognises that shocks will happen. Rather than trying to predict them, we build resilient, diversified portfolios aligned with your goals and timeframes.

 

A Reminder for Drawdown Clients: The Two‑Pot Strategy

If you’re drawing an income from your portfolio, volatility can feel more personal. That’s why we use a two-pot strategy:

1. Short-term income pot

• Held in cash and lower-risk assets.
• Designed to cover your near-term income needs.
• Reduces the need to sell long-term investments at a bad time.

2. Long-term growth pot

• Invested for growth over many years.
• Will rise and fall with markets, including during crises.
• Has time to recover because your immediate income is already set aside.

The key message: your immediate and near-term income needs are planned for and protected by design, even when markets are unsettled.

 

What You Should Do Now

As always, our guidance remains constant:

• Stay focused on your plan, not the headlines.
• Avoid emotional, short-term decisions about long-term money.
• Rely on diversification – across regions, asset classes and sectors – to navigate shocks.

If recent events are making you uneasy, please get in touch. Talking things through, reviewing your plan, and ensuring you remain on track are among the most valuable parts of ongoing financial planning – especially in times like these. I’m happy to schedule a call with you and am here if you want to talk.

Michael