When Markets Don’t Behave

The conflict in the Gulf region continues to shape global markets as it enters its fourth week, with energy exports from the region significantly disrupted and no clear resolution in sight. What began as a geopolitical escalation has now developed into a meaningful constraint on energy supply, particularly through the Strait of Hormuz, a critical artery for global oil flows.

Oil markets have responded accordingly. Brent crude has risen from USD 72.48 per barrel at end-February to above USD 100 by mid-March, reflecting both the scale of disruption and growing uncertainty around how long these conditions may persist. Estimates suggest that up to twenty million barrels per day of crude and product exports have been affected, alongside reduced production across several Gulf producers. 

Natural gas markets have tightened even more sharply. Prices across Europe and Asia have risen significantly following disruptions to LNG exports, underscoring the broader vulnerability of global energy systems beyond oil alone. 

What is becoming increasingly evident is that markets are adjusting not only to the disruption itself, but to the possibility that it may endure. That shift, from shock to persistence, is beginning to shape behaviour across asset classes.

A Constraint That Extends Beyond Energy

Prior to the onset of the conflict, global growth indicators had been showing signs of improvement, supported by stronger business activity and recovering trade flows. The current environment introduces a different dynamic.

Higher energy costs are beginning to influence both inflation expectations and economic activity. For energy-importing economies, the effect is direct. Increased input costs feed into production, transportation and consumption, creating pressure on margins and household spending.

The impact is uneven across regions. Economies with greater reliance on imported energy, particularly in East Asia and India, are more exposed to sustained increases in oil and gas prices. Strategic reserves provide some buffer, but these are finite and do not fully insulate against prolonged disruption. 

In contrast, energy-exporting economies benefit from improved pricing dynamics, although this advantage is accompanied by broader geopolitical uncertainty.

Reading the Market Signals

The adjustment is already visible across financial markets, though not always in a uniform or predictable way.

Equity markets have softened, particularly in regions more sensitive to energy costs, reflecting a reassessment of earnings expectations as input costs rise and demand conditions become less certain. In contrast, markets linked to energy production have shown greater resilience, supported by stronger revenue expectations.

Fixed income markets provide a more nuanced signal. Yields have moved higher, particularly at shorter maturities, indicating that investors are reassessing the likely path of monetary policy. Rather than anticipating an immediate downturn, markets appear to be pricing a scenario in which inflation pressures remain present, limiting the scope for policy easing in the near term.

Currency movements reinforce this interpretation. A firmer US dollar alongside selective strength in other defensive currencies points to tighter financial conditions, particularly for economies with external vulnerabilities.

Taken together, these developments suggest that while markets are adjusting, the response across asset classes is not fully aligned in the way typically seen during a conventional risk-off episode.

Gold and the Changing Nature of Hedging

One of the more notable features of the current environment has been the behaviour of gold.

Despite elevated geopolitical tension, gold prices have declined. This reflects the influence of rising real yields and a stronger US dollar, both of which reduce the relative appeal of non-yielding assets. 

There is also a practical dynamic at play. During periods of market stress, investors may look to raise liquidity from assets that can be readily sold. In such conditions, gold may be used to meet margin requirements or rebalance portfolios, particularly when other positions are under pressure.

This does not diminish gold’s longer-term role as a diversifier. Structural drivers such as fiscal expansion, geopolitical fragmentation and the need for portfolio resilience remain relevant. However, at present, monetary conditions and liquidity needs are exerting a stronger influence on price behaviour which can result in price movements that diverge from its typical response during periods of geopolitical stress.

Singapore: Stability and Sensitivity

Amid rising uncertainty, there are early indications that capital is seeking stability.

Singapore continues to be viewed as a predictable and well-governed financial centre, particularly in comparison to regions more directly exposed to geopolitical risk. This perception supports its position as a destination for capital allocation and wealth preservation.

At the same time, Singapore remains closely connected to global economic conditions. As a highly open economy and a major trading and refining hub, it is directly exposed to shifts in energy prices, trade flows and financial conditions.

The result is a dual dynamic. Singapore benefits from its relative stability, yet remains sensitive to the broader effects of higher energy costs and changing global conditions.

Positioning Through Uncertainty

The current environment calls for measured judgement rather than decisive repositioning. The initial phase of the shock has largely been reflected in energy markets and, to a degree, across rates and equities, but uncertainty around duration and escalation remains high.

As a result, the emphasis shifts towards resilience. Diversification, liquidity and balance sheet strength become more important than tactical positioning around short-term market movements. This is not a backdrop that calls for reaction, but one that requires discipline in navigating a more complex and evolving macro environment.

Conclusion: From Shock to Persistence

As the conflict continues, the central question is no longer the initial disruption, but how long it persists. Oil prices holding above USD 100 indicate that markets are not yet confident of a near-term resolution, while the release of strategic reserves provides only partial relief against constraints on physical supply.

The broader implications are becoming clearer. Inflation dynamics, policy expectations and growth prospects are increasingly shaped by the trajectory of energy prices, particularly if current conditions extend further.

The challenge for investors is to recognise the nature of the environment that is taking shape. This is less a moment of dislocation than one of adjustment, where different asset classes are reflecting different aspects of the same underlying shock.

In that sense, markets are not responding to headlines alone. They are recalibrating to a setting in which energy, policy and geopolitics are likely to remain closely intertwined for some time.