Private Wealth

May 5, 2026

The war in the Middle East remains the central source of uncertainty for capital markets. What began at the end of February with joint attacks by the United States and Israel on Iranian targets has long since turned into a global stress test for energy supply, inflation expectations and risk appetite. Reports of ceasefires have repeatedly brought temporary relief to markets. Yet the negotiations remain fragile, contradictory and politically difficult to interpret. The Strait of Hormuz continues to be the conflict’s critical chokepoint: as long as passage remains effectively restricted for many ships, the oil market will remain in crisis mode.

What stands out is the discrepancy between the geopolitical situation and the market reaction. On the one hand, energy prices remain significantly elevated, companies and consumers around the world are feeling rising costs, and central banks are facing a new inflation risk. On the other hand, equity markets have repeatedly responded with gains to mere indications of possible deescalation. US technology stocks, in particular, benefited from a robust earnings season and the continuing enthusiasm surrounding artificial intelligence. The market therefore appears to be trading less on current reality than on the hope that the conflict will soon end and that the economic damage will remain limited.

Donald Trump plays an outsized role in this complex situation. His influence is military, diplomatic and communicative. The United States is not only directly involved in the conflict, but also largely determines the framework of negotiations through sanctions, naval blockades, offers of talks and threats. For markets, what Washington does is not the only decisive factor; what Trump says also matters. This is precisely where the problem lies: his statements fluctuate between optimism, escalatory rhetoric and tactical ambiguity. At times he signals that an agreement is imminent; at others he threatens to expand military action. Such signals move oil prices, stocks and bonds in the short term, but at the same time increase uncertainty because they do not create a stable basis for expectations.

Consumers and industry around the world are paying the price. Higher oil, gas and transport costs act like an additional tax on consumption and production. Households are burdened by higher petrol, heating and electricity costs. Companies suffer from rising input costs, uncertain supply chains and reduced planning security. Energy-intensive sectors are under particular pressure. In Asia, the situation is especially delicate because many economies are heavily dependent on energy imports via the Gulf region. Even though countries such as China, Japan and South Korea are trying to use reserves or tap alternative sources of supply, their vulnerability remains high.

For Europe, this raises the threat of a particularly uncomfortable scenario: stagflation. The term describes a combination of weak or stagnant growth and elevated inflation at the same time. This exact mix is difficult for policymakers and central banks to manage. If central banks cut interest rates, they risk adding further fuel to inflation. If they raise rates, they worsen the weakness in growth. Recent sentiment data from the eurozone already suggest that rising energy costs are weighing on activity. Germany is especially vulnerable because of its energy-intensive industry and its already weak growth momentum.

At the same time, it would be wrong to draw any final conclusions about the economic consequences of the war just yet. It remains unclear how long the blockades will last, whether a credible ceasefire can be achieved and how strong second-round effects on wages, core inflation and investment will be. Central banks are therefore also likely to proceed cautiously. A wait-and-see approach is plausible as long as it remains unclear whether the energy shock is temporary or whether it will develop into a lasting inflation and growth shock.

Despite all the risks, a positive baseline scenario for the current year remains intact. In the United States, corporate investment, particularly in technology, digitalization and artificial intelligence, continues to support the economy. In parts of Asia, fiscal stimulus, industrial policy and strategic energy policy are having a stabilizing effect. International institutions are also not assuming a global collapse, but rather weaker growth accompanied by higher inflation. The market is therefore not ignoring reality completely. Rather, it is betting that the fundamental drivers of growth will remain strong enough to withstand the geopolitical shock. This assumption, however, still needs to be confirmed in the coming weeks.