Iran Conflict and Inflation: What's Driving Market Volatility | 31 March 2026
The first quarter of 2026 has been dominated by an escalation of conflict in the Middle East. In late February, the United States and Israel launched coordinated strikes on Iran, which responded by targeting energy infrastructure across the Gulf region. The resulting surge in energy prices has heightened concerns about rising inflation and a slowdown in global growth.
Signs the conflict is expanding across the Middle East have intensified fears of a sustained disruption in the Strait of Hormuz, a crucial shipping lane for about a fifth of the world’s crude, where missile and drone threats have brought tanker traffic to a standstill. The consequent sharp rise in energy prices – crude oil is up over 60% for the quarter – constitute a key component of the inflationary data analysed by central banks.
The current volatility should be seen in context of a longer time frame. Equity Markets have been in a significant bull market since the end of 2022, with the MSCI World Index returning over 60% (in AUD) over the last 3 years. Long–term investors are encouraged to remain disciplined and diversified, as attempting to time the market often leads to locking in losses.
