Last week, the simmering geopolitical situation in the Middle East took a dramatic turn with Israel launching large-scale airstrikes on Iran. Primarily targeting nuclear and missile sites and key Iranian leaders, fears are increasing of a move towards Iran developing local nuclear development capability.. 

In the days since, Iran has retaliated with missile and drone strikes on Israeli cities, with continuing attacks in both directions further prompting fears of a wider conflict that could disrupt vital energy routes and drag global powers deeper into a standoff.

Markets have already responded to the conflict. We’ve seen concerns over the supply of oil, a pull-back in equities that were within 2% of record highs, and a large shift towards “flight to safety” assets. 

For traders, this situation adds yet another challenge to the recent high-volatility conditions they have been facing. It further necessitates adherence to a robust, flexible approach to take advantage of opportunities whilst managing the risks of any fast-moving, headline-driven situation. 

Of course, the situation can turn on a dime both in ferocity and market impact, so this “snapshot” article should be taken as such — it cannot be stressed enough that keeping an eye on the latest developments will be critical in the coming days.

What’s Happening: The Escalation So Far

In just a few days, the situation has moved from a first-phase targeted operation to a broader and predictable conflict:

14/06: Israeli strikes disabled major parts of Iran’s Natanz nuclear facility. Satellite images and local reports show extensive structural damage and large power grid failures. There are discussions about the effectiveness of the current Israeli missile capabilities to get “deeper” and create permanent damage. The potential for US assistance in supplying such a “bunker buster” has been discussed.

15/06: Iran’s response was significant and immediate, with more than 150 ballistic missiles and over 100 drones launched at strategic targets throughout Israel. Tel Aviv, Haifa, and key military sites have been hit. Although Israel’s advanced missile defence systems intercepted the majority of the attack, some ballistic missiles have caused damage and both civilian and military casualties.

Today: Further Israeli strikes are now in progress — a promise made from the very start by the Israeli prime minister. Intelligence and media reports suggest significant further escalation will come within the next few days from both sides.

The Global Response

The United States attempted to immediately distance itself from direct involvement in the initial strikes, although they are seen by many in the Middle East as being indirectly involved through the continued provision of military assets to Israel. The US has reinforced military assets in the Gulf as a potential deterrent. It has also warned Iran against targeting American forces or bases in the region.

European leaders, including France’s President Macron and Germany’s Chancellor Scholz, have called for an immediate ceasefire and offered to assist in talks that may produce some resolution.  

Other oil-producing Gulf States, like Saudi Arabia and the UAE, have publicly urged that both sides exercise restraint. Increased security around their own key oil terminals has been put in place. 

China and Russia have both issued statements condemning the military escalation, but have largely been passive outside of these comments. 

Global energy agencies and OPEC+ have not announced any emergency production increases yet on top of what has already been planned. Some contingency planning will be underway in case Hormuz traffic faces disruption.

How Markets Are Positioning Right Now

Oil Supply Risk Creates Significant Moves

Both WTI and Brent crude were seeing a strong last month, but price moves have (not surprisingly) accelerated over the last few days, with both now sitting above $75. The risk is physical supply cuts as well as logistical bottlenecks if ships need naval escorts or higher insurance to pass through Hormuz.

Equities Showing Caution

Global indices are down 1–2% from last week’s levels, after eyeing record highs earlier in the week. There appears to be some rotation out of cyclical and travel stocks, with airline stocks dropping sharply due to the potential for rising jet fuel costs and the need to re-route flights away from the affected region. On the other hand, stocks in the defence and energy sectors have benefited, e.g., Lockheed Martin.

Flight to Safety?

Gold has been the major beneficiary — Gold Futures have pushed over 3400 with a record high less than 0.5% away. Both institutional hedging and retail safe-haven flows are evident, while base metals have dropped with a risk-off rotation.

The US Dollar index futures are surprisingly weak, continuing a decline, but risk currencies like the Aussie dollar are showing some weakness against most crosses.

US Treasury yields have also dropped modestly through the week.

Five Things to Watch Now

It is relatively early days in this conflict, and how it evolves will determine whether this is a short-lived geopolitical spike or a sustained macro theme that will impact markets on an ongoing basis. 

There are a few key watchpoints:

• Strait of Hormuz traffic and shipping costs

If insurers price routes significantly higher, or military convoys are needed, oil can spike further, even if there are no direct physical attacks on tankers.

• Prolonged follow-up and “wider” strikes

Continued Israeli raids and Iranian retaliation, and involvement of regional oil infrastructure (like Saudi or UAE pipelines) would be major escalation triggers on oil prices.

• OPEC and emergency output decisions

So far, the major energy organisations have been quiet. Prolonged conflict will force decisions and announcements to be made, with perhaps further increases in oil production. 

•  Central Bank Rate Impact

Watch Fed, ECB, or RBA statements for clues on whether there may be perceived additional oil-driven inflation risks that may push back any rate cut timeline expectations. The Fed is not expected to offer a likely cut until September, but the RBA is expected to cut at their next meeting

• Volatility 

The volatility that markets have experienced this year is likely to continue if any conflict is prolonged and/or escalates. As always, markets struggle with uncertainty and with threats to global growth already on market minds, an increased sensitivity to any news events may be likely. 

How to Adapt: System, Entry & Exit Tweaks

In tense geopolitical markets, some trading strategies may need adjusting. It may not be a market that is forgiving for traders caught up in every small headline or succumb to any greed-based actions.

Be more selective: Use stronger confirmation before entering breakouts or reversals. e.g., wait for a second bar close above a key level rather than a single spiking candle.

Look for confluence: Combine price action with volume increases and confirmation candles to reduce the potential whipsaw risk.

Increase use of partial closes: Taking profit on half a position when a logical target is hit could be a tactic worth consideration, trail the rest with a tighter stop.

ATR-based trailing stops: Another consideration is to adapt to wider intraday ranges that will be typical in many asset classes.

Reduce position size per trade: Lowering tolerable risk levels, especially on leveraged trading instruments, perhaps to 1% risk or below on single trades.

Consider more instruments: Use more instruments with a lower correlation to “either way” significant oil price shocks. e.g., lessen exposure to Canadian dollar crosses.

Be cautious in headline-driven markets: Any belief as to what is likely to happen should be balanced with the reality that the situation can and is likely to change unpredictably. Don’t be afraid to change your mind, cut losses early, and take profits perhaps a little more aggressively than your norm. 

Learn trading lessons from this situation: This situation is likely to repeat many times in the future — use it as an opportunity to learn.

Keep an alert watchlist: Arm yourself with the resources likely to give you timely and accurate information. Make sure you track credible news wires — not just opinion articles. Shipping data, OPEC, and EIA statements are worth checking in with regularly. 

Attend our Live Markets updates on Monday and Thursday, and Inner Circle on Wednesday, to get the latest and ask questions that will help your decision-making. 

Summary 

The Israel–Iran conflict is (and will continue) to be a sharp reminder that geopolitical flare-ups can collide with an already sensitive macro backdrop. Oil, inflation, movements in gold, and central bank policy are all in play at the moment.

For traders and investors, the key takeaway is simple — being active rather than passive in arming yourself with the right information is critical on an ongoing basis. 

Maintain flexibility in your trading approach based on how markets are actually responding rather than how you think they should be, and adjust your risk and opportunity tactics as appropriate.

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