Nowhere is this more apparent than in the Strait of Hormuz. The narrow stretch of water, which around one-fifth of the world’s oil normally travels through, has been effectively closed to tanker traffic since the war began. And that’s not because Iran is more powerful than the US and Israel, but because it can inflict substantial damage with relatively modest means. This is something Washington clearly seems to have been unprepared for. There’s no quick exit in sight that could be framed as a strategic success, and the US looks to have reached a dead end.
The consequences extend far beyond the Middle East. Geopolitically, China and possibly Russia may well emerge stronger, while confidence in American leadership continues to erode. In economic terms, the oil price has already risen sharply as a result of blocked transport routes, which is likely to increase inflationary pressure once again.
It’s not clear how long the conflict will last. But it would be risky to assume that this won’t affect global economic growth. This means there’s a risk that the uptick in sentiment at the start of the year is already waning again in many industrialized countries. It comes at a particularly unfavourable time for the US economy. By the fourth quarter of 2025, growth had already slowed significantly and the labour market was facing falling employment for the first time in years – a pattern that has always preceded a recession since World War II.
This is piling the pressure on financial markets. Higher expected inflation combined with a weaker growth outlook are not a good starting point for the equity markets, whose valuations are already high. It’s also remarkable that not only nominal interest rates on US government bonds, but also real interest rates, have risen recently. If growth prospects were weaker, we would normally expect the opposite, i.e. falling real interest rates, as demand for capital falls. This may be the first warning sign that confidence in US fiscal policy is gradually crumbling.
These developments once again bear out our cautious stance towards US investments. With our reduced commitment to the US market, we remain well positioned. We’re maintaining our increased gold allocation as the precious metal has proven its worth historically in times of geopolitical uncertainty and rising inflation. Gold should benefit from rising uncertainty this time around as well. At the same time, we’re reducing our exposure to emerging market bonds back to long-term strategy levels, as experience shows that these securities are in a difficult position in an environment of rising inflation and weaker growth.
