The outbreak of war in the Middle East is a reminder of how quickly geopolitical events can ripple through global commodity markets. While the immediate focus has been on military developments, we have been closely watching the potential economic consequences — particularly in energy markets. Historically, conflicts in the region have mattered most when they threaten the flow of oil and natural gas to global markets.
Investor Takeaways
The duration of the disruption often matters more than the initial shock. Commodity markets tend to react quickly to geopolitical events, but sustained supply disruptions — rather than short-lived volatility — are what ultimately reshape pricing cycles.
Energy markets are the primary transmission channel. Because a meaningful share of global oil and liquefied natural gas (LNG) exports move through the Strait of Hormuz, even partial disruptions can quickly shift markets from oversupply toward tightening conditions.
Higher energy prices often ripple outward across other commodity markets. Fertilizer, vegetable oils and refined petroleum products (i.e., gasoline, jet fuel) can all experience secondary price increases as transportation, refining and agricultural supply chains adjust.
The consumer ultimately absorbs much of the economic impact. Rising gasoline and energy costs function much like a tax on household spending, often weighing most heavily on lower-income consumers.
While geopolitical conflicts can introduce volatility and risk premiums into markets, history suggests that financial markets typically adjust more quickly than headlines might imply, with long-term performance driven primarily by underlying economic fundamentals.
Energy and Commodity Market Implications
Much of the oil produced in the Middle East relies on the Strait of Hormuz to reach global markets, and while some volumes can be rerouted through alternative pipelines or ports, those alternatives are limited. As a result, a disruption can quickly turn an oversupplied market into one facing a meaningful shortfall.
Under current conditions, analysts estimate that Middle Eastern producers could redirect up to 7 million barrels per day (bpd) through alternative routes, but that still leaves a substantial portion of supply effectively stranded. Even if the situation resolves quickly, the episode could leave a lingering risk premium embedded in oil prices.
The LNG market faces similar dynamics. Entering the year, many observers expected a period of oversupply to emerge during the second half of 2026 as new global capacity came online. However, disruptions affecting export facilities in the region could significantly alter that outlook. After conditions stabilize, it can take weeks to bring operations fully back online. A prolonged shutdown would likely eliminate the anticipated near-term oversupply in LNG markets and could even tighten supply conditions heading into the winter heating season.
U.S. consumers feel the impact of higher oil prices primarily through higher gasoline prices. About 20% of global oil supply transits the Strait of Hormuz, and when supplies are constrained, prices naturally increase. Higher oil prices lead to higher gasoline prices, which have spiked since the beginning of hostilities. According to the U.S. Energy Information Administration, the average price for gasoline in the U.S. jumped to $3.50 per gallon (as of Monday, March 9), an increase of about 25% since January, and the highest it’s been since June 2024; however, that’s still below the important psychological barrier of $4 per gallon.
Process Focuses on Long-Term Impact
For long-term investors, periods of geopolitical uncertainty often reinforce the importance of maintaining a disciplined investment process grounded in underlying business fundamentals.
At Westwood, our equity investment process begins with a shared set of assumptions about the U.S. and global economy. These assumptions help frame expectations for growth, interest rates, employment, inflation, commodity prices and industrial activity, creating a consistent foundation for our fundamental analysis as we evaluate companies across our coverage universe.
As geopolitical events unfold, our analysis focuses on how changing conditions may affect the businesses we follow. In the current environment, that includes assessing the initial impacts of the conflict, such as higher oil prices and inflation’s effect on purchasing power, as well as potential secondary and tertiary effects across supply chains. For example, rising resin prices could increase packaging costs for food and pharmaceutical producers, while tighter fertilizer supplies could reduce agricultural output and contribute to higher food prices.
As long-term investors, we focus primarily on a company’s ability to generate revenue and earnings over the next one to three years. With that perspective, we generally avoid making significant portfolio changes in response to short-term news events — even developments as significant as war. Maintaining a long-term focus helps us avoid reacting to the noise of daily market volatility.
We will continue to monitor evolving economic conditions and update our outlook as needed. Our investment philosophy centers on identifying stocks trading at the intersection of quality and value, companies with strong fundamentals that we believe are available at attractive valuations. Over time, this disciplined approach has historically helped navigate periods of market uncertainty while positioning portfolios to deliver more consistent returns with lower volatility and greater downside resilience.