Conflict & Inflation: How to Position Your Portfolio for the Next 12 Months

Geopolitical tensions in the Middle East have pushed oil prices higher, driven largely by uncertainty around supply risks and key energy routes such as the Strait of Hormuz. As energy markets react, inflation pressures tend to follow through rising transport, production, and consumer costs.

In this environment, investors are reminded that while markets shift quickly, the principles of sound portfolio construction should remain steady.

Inflation Risk and Market Transmission

Oil is a core input across most economies. Even modest increases in crude prices can have meaningful macroeconomic effects. Studies suggest that a sustained US$15 per barrel increase in oil prices can raise global inflation by nearly 0.5 percentage points while slightly reducing growth momentum.

The impact is uneven across regions. Asia, which imports most of its energy needs, is especially exposed due to its reliance on oil and LNG flows through the Strait of Hormuz. For trade-dependent economies like Singapore, higher energy costs can quickly filter into electricity tariffs, transport costs, and consumer prices.

Diversification as the First Line of Defence

In uncertain environments, diversification remains the foundation of portfolio resilience. Spreading exposure across geographies, sectors, and asset classes helps reduce dependence on any single economic outcome. This allows portfolios to better absorb shocks from energy volatility, inflation swings, or geopolitical events.

Disciplined Allocation Over Reactionary Decisions

Geopolitical headlines often trigger emotional reactions, but short-term timing decisions can increase long-term risk. A disciplined allocation framework helps investors stay invested through volatility and avoid overreacting to temporary shocks.

The objective is not to predict the next crisis or the exact path of inflation and oil prices. Instead, it is to build portfolios that do not depend on being right. In addition to diversification, resilient financial planning is rooted in thoughtful inflation hedging, which refers to investing in assets that help preserve purchasing power when the value of money declines over time, as well as disciplined allocation that can withstand uncertainty over time.

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Disclaimer:‍‍‍‍‍‍ Investment carries certain risks. You should not just rely on results as an indication of your financial needs. You should understand and familiarise yourself with any investment and the associated risks before investing. You are also recommended to seek professional advice before making any decision to buy, sell, or hold any investment or insurance product. The views and thoughts expressed in the post belong solely to us and not to Manulife Financial Advisers Pte Ltd. or any other group of individuals.

Sources:

1. https://www.channelnewsasia.com/commentary/iran-us-israel-war-global-economic-impact-singapore-5972956
2. https://www.weforum.org/stories/2026/03/the-global-price-tag-of-war-in-the-middle-east/