Middle East Crisis: Expert opinions on what should be your investment strategy and key risks to be aware of

Tensions in the Middle East remain high, with the escalating conflict between Iran and Israel raising alarms about the possibility of a broader regional crisis. Should the situation deteriorate, the potential impact on global crude oil prices could be significant given Iran’s position as a major oil producer.

Although crude oil prices have stabilised for now, any sudden surge could disrupt central banks’ plans for rate cuts. Higher inflation driven by increased oil prices may challenge economic recovery efforts and strain emerging markets like India, which depends on imports for 80% of its oil requirements. Such a rise in crude prices could further dampen investor sentiment and intensify pressures on economies already facing external vulnerabilities.

The Indian market is currently undergoing a correction phase, impacted by the rise in the dollar index following Donald Trump’s victory in the 2024 U.S. Presidential elections. The persistent tensions in the Middle East are compounding negative investor sentiment, pushing investors to seek refuge in safer assets like bonds and gold.

Amidst the uncertainty, the ongoing crisis prompts investors to reassess risks and adjust their investment strategies accordingly. Experts continue to analyse how the evolving situation affects market stability and offer insights on protecting portfolios from potential volatility and disruptions.

Let’s take a look at what market experts suggest in such a situation.

Ongoing Tensions and Market Adaptation

Aman Soni, Head of Operations at Prudent Equity, noted that while the Middle East crisis shows no clear signs of resolution, global markets have largely adapted to the enduring instability. According to Soni, “Markets have factored much of the risk into their pricing, and, for now, the impact has been contained.” However, he stressed the importance of investor vigilance, as unforeseen developments could still trigger market volatility. “A sudden escalation of conflict or unexpected political events could disrupt markets, and preparing for such unpredictable scenarios is challenging, despite our best efforts,” Soni noted.

Currently, crude oil prices have stabilised, with expectations that they will remain within manageable levels in the near term. This stability has provided some insulation from larger shocks for our economy. As a result, while the crisis is far from over, no major adverse impacts are anticipated at this stage except for the slowdown in earnings growth and investors should continue to remain vigilant, he added.

Riya Oswal Bafna, Co-Fund Manager at Purnartha PMS, echoed this sentiment, emphasising that the Middle East has long presented a source of market concern. However, she pointed out that the Indian market’s impact is more stock-specific, primarily affecting logistic costs, as oil sourcing has shifted more towards Russia in recent years. “If the crisis escalates to a wider regional conflict, it might create a broader impact, but right now, this risk should start mitigating post-U.S. elections,” said Bafna.

Sonam Srivastava, Founder of Wright Research, highlighted that potential disruptions in oil supply could lead to increased energy costs and inflation. “To safeguard portfolios from sudden corrections, investors should consider diversifying across asset classes and geographies to mitigate region-specific risks,” Srivastava advised. She suggested allocating investments to commodities like gold and focusing on fundamentally strong companies to ensure portfolio stability. “Regular portfolio reviews and disciplined investment approaches will be crucial in navigating uncertainties arising from the Middle East situation,” she concluded.

Energy Market Dynamics

Rakesh Vyas, Co-Chief Investment Officer and Portfolio Manager at Quest Investment Advisors noted that energy prices have remained relatively stable despite the crisis, minimising the broader economic impact on India. He highlighted former U.S. President Donald Trump’s emphasis on ending current conflicts, which, if successful, could restore geopolitical balance and ease commodity supply disruptions. Vyas stated, “This could lead to a moderation in earnings for Indian companies that have benefited from these disruptions over the past 2-3 years.”

Kashyap Zaveri, Fund Manager and Head of Research at Emkay Global Financial Services emphasised that slowing demand for oil and gas has mitigated the crisis’s impact. He also pointed to potential positives with the new U.S. administration. “Trump has always supported increasing U.S. oil production, and with continued slow demand from Europe, this could benefit India, which imports one-third of its total oil,” said Zaveri. This would, in turn, support liquidity and interest rates in India.

While markets have adapted to the current instability in the Middle East, experts agree that vigilance is key in an unpredictable geopolitical landscape. Diversifying investments, focusing on strong sectors, and staying disciplined are essential strategies for navigating these uncertain times. Investors should remain prepared for any sudden changes while seeking long-term opportunities for growth.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.