Will Operation Epic Fury Trigger an Oil Shock?

12.03.2026

With the outbreak of war in Iran and a dramatic 48 hours in global markets, many investors are questioning what comes next. In this episode of SB Talks, CEO Vincent O’Neill and CIO Nick Ryder break down the impact of geopolitical developments on energy prices, inflation, and portfolio performance. They discuss base-case expectations, downside risks, and how markets have historically responded to periods of conflict and heightened uncertainty. Most importantly, they share why a disciplined, diversified approach remains critical when emotions run high.

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Vincent: Welcome to SB Talks. Today is Tuesday, March 10th. My name is Vincent O’Neill, and I am joined by our Chief Investment Officer, Nick Ryder. Welcome, Nick.

Nick: Thank you, Vinny.

Vincent: Now today Nick and I will be discussing the unfolding conflict in the Middle East, as well as the key considerations for markets and portfolios. Welcome to all our listeners.

It has been a tumultuous 48 hours on investment markets. This time yesterday we were seeing the oil price spike significantly. It was reaching on the cusp of 120 US a barrel, only in the last sort of 12 hours to sink down beneath a hundred and now potentially beneath $90 a barrel. At the same time as that oil price was escalating yesterday, we had bond deals soaring. We had the Aussie market opening down sort of four, four and a half percent close the day, somewhat stronger. Eventually only off about 2.85, but still a significant drop. But then as the day went on, and Europe woke up and eventually America woke up and we got some more commentary out of the White House. Things started to look less bleak, or at least the markets started to be less concerned than they were 24 hours ago.

Nick: Yeah, I think the initial trigger was, ,the G Seven finance ministers said that they could jointly release some strategic, petroleum reserves, so that saw the oil price come off a little bit, as additional supply potentially hitting the market to compensate for some of the loss of supply due to the closure of the Straits of Hormuz. And then also subsequently we had the White House talk about different measures potentially to put a lid on US gas prices or their fuel prices, potentially, waiving federal taxes. Removing the requirement under the Jones Act that U.S. fuel has to be shipped on U.S. flagged carriers. Potentially pressure on Gulf States to increase production, and also discussions about potentially short term or longer-term waivers to Russian fuel sanctions. So, for example, India might be able to import Russian fuel without being sanctioned or having tariffs levied by the U.S. So, whether that that could be a short term or maybe a longer term.

Vincent: Just to try and get some more Russian oil into it, into global markets, not necessarily an ideal outcome. And I think there were some reports into ways that they could chaperone ships potentially through the Straits of Hormuz. But, you know, even just the description of what they’d have to do was quite offput to many and just highlighted how difficult a straight that is to navigate and how many perils exist.

Nick: Yes. Well, the French, for example, Macron has said they’d be willing to potentially be part of an international naval force to do that. But only once the fighting is sort of, is over, I guess, to some degree. So, it’s still a very fluid situation.

Vincent: I’m conscious that this is not a geopolitics podcast and. Neither of us prepare or pretend to be, I guess, experts on that sphere, albeit, have a healthy interest in it. But it’s almost impossible to talk about markets without that heavy overlay of what is continuing to unfold in Iran. And I am conscious that in the couple of weeks since we last recorded, that the whole situation in Iran has obviously unfolded with the original U.S. in Israeli operation.

The execution of the former Supreme Leader, and then over the weekend, the announcement of the replacement with his son and against this background, guess a continuing rhetoric out of the White House around what their objectives are, what they might be, and what the timeframes might be, we’re anything but certain.

Nick: Yeah, I think that’s the thing. Markets don’t like uncertainty and, as you note, the rhetoric out of the White House, different people, Hegseth, Rubio, Trump, they’re all saying slightly different things about what the objectives are. And I think at one point there was even some possibility of Trump saying this could last longer and.

Vincent: Of four to five weeks at 1.4

Nick: to five weeks, but even longer. I think the word September came up at one point he didn’t rule out troops on the ground, so it was very, very unclear. And markets. I think that’s what in part propel the oil price to almost $120 as people thought, oh, this isn’t just going to be a short-term thing. This could be a longer-term thing.

Vincent: There was a wall of worry over the weekend, I think it’s fair to say. And we got to Monday here and unfortunately, we’re one of the first people to wake up across the financial world in Australia, doesn’t know what to do. And the markets were. Understandably, I guess, concerned with, given what was happening on the oil price.

Nick: Yeah. But I think it’s, interesting Trump, very recently said in an interview with CBS news, I think the war is very complete. Pretty much that’s to quote him, he says nothing left in a military sense. And we’re ahead of our initial timeline by a lot. So, the current talk is that this is going to be fairly short and maybe could end soon, but who knows?

Vincent: And I think the, who knows element is an important one because, not to get too grandiose on this. That’s just the nature of what we’re dealing with. In terms of this administration, we saw it 12 months ago with tariffs and that was incredibly unpredictable and the market certainly had a major reaction to that. This is a completely different circumstance. Obviously, you’ve got, a military operation, horrific loss of life and other things. But then there’s market commutations to it, but with extreme degrees of uncertainty just in terms of timeframe and scale.

Nick: Well, my base case, which I wrote about in our recent monthly publication is that I still believe on a kind of from the base case that this is going to be fairly short. Maybe a bit longer than the 12th day Israeli US attack in June last year. But probably not a lot longer just given, maybe the objectives are not regime change, but more just degrading of the Iran’s ballistic missile, and nuclear capabilities. Really is so setting those capabilities back a number of years. And also, they’re expending a lot of ordinances, which has to be rebuilt.

Vincent: A lot of missiles, drones, bombs, see multimillion dollar patriot missiles fired at $50,000 drones.

Nick: Yeah. So, there’s a limit to how long they can sustain that. I think, I still believe this is going to be over in fairly short order. But there is a risk, quite a material risk that this becomes longer. And the oil price goes back up to over a hundred dollars barrel. And then we have another sort of oil shock, Allah 2022 when Russia invaded Ukraine.

Vincent: So, let’s talk to that. Let’s not completely park that scenario. It’s important that we consider it and think about it. Let’s unpack that a little further because I think you are setting out there, which is the more bearish or concerning potential case around this, which is, an escalation or a maintaining of the current sort of degree of conflict, which then has a spill through to the energy supply. And as we were discussing this morning, you know, if you were to really cut off a, a substantial portion of the energy that is supplied into the world market from that region, it’s just not there to be replaced.

Nick: Yeah. So around 21 million barrels a day passes through the Straits of Hormuz, and that’s out of a hundred million barrels a day of global supply. So, it’s a substantial percentage of global supply. And it’s not just, crude oil, it’s also fertilizers and L-N-G-L-N-G. And so, it would be a huge shock if it was sustained for any length of time. We saw that in the 1970s with a couple of oil shocks then. And as I said in 2022, a little bit of an oil shock around the first Gulf War in 1990. It’s a non-trivial risk. As I said, it’s not my base case and I don’t think, from a lot of commentators that I follow, it’s not their base case either, but it’s certainly something that we should be aware of. But I think there’s a couple of things that are kind of missing at this point in time.

Ingredients for sort of more sustained global recession. One is that the price needs to stay high and people need to believe it’s going to stay high. So, the futures market, has never really priced in sustained oil price. Even yesterday when it got up to about $120 a barrel on the spot price, on the spot price, the 12 month price was still in the seventies, sort of mid to low seventies. 12-monthly an expectation of a deescalation in the not too distant future. Whereas in 2022, the forward price was well over a hundred dollars as people thought, oh, this could, last a long time. So that’s a bit different this time around. The second thing is central bank reaction, in 2022, obviously, we were faced a sort of coming out of COVID. There was still a lot of supply pressures, and then we had the Ukraine conflict.

Vincent: On top of that, that pushed up energy and food prices just exacerbated a, an inflation problem that was already really there in the system.

Nick: Yeah, and we were starting at very low interest rates, whereas today we don’t have those COVID supply pressures. Inflation’s still a little bit elevated, but it’s nowhere near what it was then. And so an oil shock, would be inflationary, but it wouldn’t be as impactful as it was four years ago. And the central bank reaction would probably be very different. They may delay cuts in the US or, maybe in Australia we get an extra hike, but I don’t think it’s substantial for asset prices as it was back then.

Vincent: Yeah. Well at that point we were at the start of a, a necessary hiking cycle. To meet that inflationary problem, whereas I guess we’re in quite a different monetary policy footing today.

Nick: Yeah. And, as we’ve discussed, the economic backdrop is pretty good, in most countries, we got GDP numbers in Australia last week. It was 0.8% for the quarter, 2.6 year on year. That’s pretty good. That’s sort of a round trend, a bit above trend growth and the same in the U.S. So, the economic starting point is very different to where it has been before, prior sort of oil shock. It’s, as I said, it’s not my base case, but these things can blow out and, and there’s a potential that even once Israel and the U.S. stop attacking Iran, Iran could still decide to keep the Straits of Hormuz is closed effectively with, $2,000 toy drones threatening ships. They could still do that, even after, everything has stopped from the U.S. Israeli side. So that’s a risk as well.

Vincent: As an investor, I guess we’ve talked before about the need for, I guess, measured response to these things. When you have days like yesterday that tests, the measure I would expect.

Nick: Yeah. I’m sure we’ve discussed this many times on this podcast that geopolitics tends to have a fairly short and sharp market response. People don’t like uncertainty, so there’s a bit of de-risking and then people kind of move on from that, in the case of Russia, Ukraine, that’s been going on four years, people kind of move on and think about other things. We saw in, the 12 day war, as I mentioned in June last year, the oil price spiked and then it went back down again and kind of everyone moved on. So generally geopolitical events, if they don’t threaten the global economy, don’t really have much of an impact. And so, I think it does come back in this scenario to how long this conflict’s going to last. Is it going to be short and sharp and then we can all get back to normal or is it going to go longer and therefore there could be more of an economic impact.

Vincent: Yeah, more of a protracted impact on energy supply, energy prices, and therefore a flow through to the economic picture. You have such that the growth trajectory that we, I think we’re looking at today or expect that we’re looking at today is not is not the same.

Nick: Yes, that’s right.

Vincent: I want to expand further on that point if I can and talk about, I guess just how you think about portfolios through periods of this. You talk many times about setting them up with bumper bars and other things in place, but it is probably worth reinforcing, I guess, how we think about portfolio construction, probably that strategic asset allocation that’s in place and, why there actually parts of the portfolio that, can actually do well through these periods, even when other, obviously more growth oriented equities in particular are going to have tougher days.

Nick: So, three years ago when we reshaped our diversified portfolios, we were thinking about what the future might look like and, we were living in a world where potentially inflation could be higher and more volatile than, it had been. It was just after the 2022, inflation shock, which saw both bonds, equities, property, anything that’s rate sensitive, all go down together. And we wanted to build portfolios that are a bit more robust if that is sort of that sort of scenario happened again, which is potentially what we’re facing at the moment.

And what did we do? Well, we included a reasonably material allocation to alternative investments. So that’s things like, hedge funds, things that are non-correlated to interest rates, and potentially could do well in a, oil shock. So, we’ve included a reasonable allocation to, for example, trend following funds, these are funds that probably are long oil at the moment. , And they were in 2022 and made a lot of money in 2022. So that’s just a form of diversification that we’ve built into portfolios. And we also have a reasonable allocation to property and real assets. That’s a sort of more defensive, inflation sensitive sector, even though there’s some interest rate sensitivity. That was also a sector that did okay in 2022 relative to equities and bonds because of the inflation passed through, to infrastructure revenues, and real estate rents. So, we try and make portfolios is more robust, more diversified, less exposed to inflation shocks.

Vincent: We build a portfolio for periods like this, and I guess this is where you test drive, whether those different parts within it operate as you would hope and expect through this period. But it’s with some degree of comfort that we’ve probably come through the last 12 months and with various waves of uncertainty and they have played their part in that portfolio.

Nick: Yeah, no, it’s worked quite well.

Vincent: And then, I have to address the bear case, because there will be some people that will certainly have, have probably looked at what occurred on the Australian share market yesterday and thought, oh, the world is, you know, this is a major issue. This is going to go on for a very long time. Why not just go extremely defensive and back to cash.

Nick: Because cash is usually the worst asset class. You really have to look very hard to find a year that cash was the best performing asset class. I think it was 1994 it was neck and neck with infrastructure in 2022. But generally, cash is not as good, it’s the lowest risk. So obviously the lowest return. Hiding in cash if you can time it perfectly great, but most people can’t. And the futures market, for example, is saying that the Aussie market will probably be back up strongly today. So, very hard to time these things perfectly.

Vincent: We know that is probably going to be the case because the US ended up finishing up  Despite starting the night, their morning moderately down. And probably we could add to that. Unfortunately, we’ve been through this before, maybe not exactly like this, but we’ve had the tariff situation just under 12 months ago, which was very unsettling for markets and various other spot crises along the way. Dare I say that this is probably, and I know you’re going to say it, you wrote about it in your annual report, but this is the environment we need to expect.

Nick: We do, there’s a lot of  things that come our way that we don’t predict. And that’s why we build diversified portfolios to buffer returns against that. And the other thing it’s to note is most years you’ll get an equity market pull back of around 10, maybe even 15%, but it’s normally they’re pretty short-lived. And we did see that after the liberation day sell off last year. Ultimately, we got positive returns for the year. It’s really only a global recession that will cause a sort of deep bear market. Or even, maybe in 1970s scenario where inflation was out of control. And in real terms, after adjusting for inflation portfolios, did pretty poorly in that decade. So, we, try and build portfolios that are resilient to that. We try not to get too worried about short term dips.

Vincent: But I think there’s a few really important points in this that I want to draw back out of it as well, which is, I guess your base case and your base case is not for this to become a protracted conflict. Not that we have any certainty on it, but that we will. Begin to move through these situations at a certain point. And that, your base case, which is a more positive economic outlook globally, remains on course now. We are, I guess, having to read between the lines at the minute and some of the rhetoric that’s out of the administration and different things going on. Not dismissing, I guess, some of the challenges that are ahead, but also not wanting to overreact to some of the short-term factors. Well, it’s clearly still an unfolding situation.

Nick: Yeah. It’s something that we continue to monitor. We’re spending a lot of time looking at the news flow, trying to gauge whether this is in line with our base case fairly short term, or whether there’s risks that it sort of becomes a longer-term conflict. But for now, we remain comfortable. That, it’s likely to be over in the next few weeks.

Vincent: Thank you, Nick. That’s incredibly comprehensive and, I’m very conscious that times like these can be distressing. So please don’t hesitate to reach out to your advisor. Please don’t hesitate to talk to us at Stanford Brown. But, thanks once again Nick, and thank you to you, our listeners.

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