A specialist exchange-traded fund manager has warned the conflict in the Middle East is likely to affect global energy prices for longer than originally expected.
Global X investment strategist Justin Lin made the call as a result of the recent United States strikes on Iran’s key oil export hub at Kharg Island. Lin noted the action appears to reflect the US government’s sentiment the conflict is not expected to be a short and sharp one, but instead is preparing for a prolonged engagement, which will enhance the significance of the resulting economic impact.
“Markets have been contending with signs of slowing growth in the US. Now higher inflation driven by energy prices could be the final puzzle piece that pushes investors to seriously consider the risk of stagflation in global economies,” he indicated.
“Even without the stagflation risk overhang, the equity market’s rate-cut narrative has already weakened over the past two weeks, while ongoing stress in private credit markets is also starting to weigh on investor sentiment and share markets.”
He identified the industry sectors that have historically been popular among investors in times such as these.
“Commodities have historically been the place to hide in these environments. While equities are pressured by higher input costs and rising interest rates, investors often turn to real assets like commodities as an inflation hedge,” he pointed out.
“Precious metals also tend to benefit when financial systems and economies come under pressure, something that could become increasingly relevant if stress in private credit markets builds.”
According to Lin, the current geopolitical situation has similarities to the experience of the late 1970s, particularly with regard to the price and popularity of gold.
“The combination of war in the Middle East, heightened market volatility and rising energy prices is particularly reminiscent of that period and could conceivably set the stage for a sustained ‘gold supercycle’ with prices potentially reaching as high as US$6000 per ounce,” he forecast.
Referencing the circumstances of the Australian market, he predicted the expectation of official interest rate rises in the immediate term will see the equity market experience increasing pressure.
“Assets that were priced most exuberantly are likely to be hit hardest as higher rates raise discount factors on future cash flows,” he said.
He suggested in this environment investors might benefit from a more value-based approach that should include allocations to materials, which are now trading at their cheapest levels since June 2025 and may benefit from stronger commodity prices in a higher-inflation climate.