Paul Clitheroe's guide to the Middle East crisis and market volatility

For more than four decades I've been talking about diversification in our investments.

The primary reason for this is that history tells us we will have regular global shocks. For thousands of years we've had wars, plagues, recessions and less frequently, depressions. 

Interest rates rise and fall as do markets. Of course, neither I, nor anyone else, has any idea on a consistent basis, why - or when - most of these events will happen. 

For example, when I looked at market themes for 2026 just a few weeks ago, nowhere did I mention war in the Middle East and a near-doubling in the price of crude oil since the start of 2026. 

Obviously, this is a global issue, and concerns about the Middle East crisis go beyond rising fuel prices. Lives are being lost, people are losing their homes and livelihoods are being damaged. 

For the 115,000-plus Australians who live in the region, the conflict has scrambled daily life and upended future plans.

The Strait of Hormuz has regularly been in the media over the past few decades. This is no surprise, it is a key transit lane for oil and other commodities. Until flows normalise, fuel prices look set to remain high. 

How should we, as investors, respond? 

The first step is to focus on what we can control. 

Neither you, nor I, have any direct influence over what's going on in the Middle East. What we can control is how we manage our money and our portfolios. 

With this in mind, let's unpack the bigger picture, and take a look at how to forge a path through the current crisis. 

Sharemarkets are down - but not out 

Only a few weeks ago, the Aussie sharemarket was nudging record highs. Not anymore.

Sharemarkets globally have taken a hit since the US attacked Iran on February 28. 

As I write, Aussie shares are down 6.3% for March so far, and it's a similar story around the world.

Energy stocks are among the few to have bucked the downward trend. The ASX energy index rose a thumping 9.2% this month so far, helped along by expectations that gas shortages could see nations ramp up their coal-fired power generation. 

While it may not be much consolation, the 6.3% drop in Aussie shares through March is a far cry from falls we've seen in the not-so-distant past. 

Remember when the ASX plunged after Trump announced his so-called Liberation Day tariffs in April 2025? Or the 35% drop in Aussie shares in March 2020 at the start of the COVID pandemic?  

We saw markets recover surprisingly quickly from both events. And to some extent that's given investors a playbook to follow - especially around the 'do not panic' mantra. 

I cannot stress this point enough.  

Investments such as quality shares have returned, including dividends, over 10% a year on average.  

Take the past 126 years since 1900 - a period that included two world wars and the Great Depression. Over that time, the Australian sharemarket has returned about 13% a year on average. That's despite it falling in 24 of these years - the worst being a drop of about 40% in 2008!  

The upshot? History shows that panicking and selling quality assets in a downturn is an error. 

Let's remember this. 

Yes, your super is likely to be impacted 

On the super front, in any balanced or growth style fund, chances are your balance will be less than it was a month ago. 

SuperRatings estimates the median balanced option has likely fallen 1.6% over March. Growth options, with their greater exposure to shares, could potentially be down by 2.0%.  

Even more defensive, capital stable options are also estimated to have taken a loss.  

Inflation is driving up interest rates 

To top things off, the Reserve Bank lifted interest rates by 0.25% this week, taking the cash rate to 4.1%. 

A March rate rise was on the cards regardless of events in the Middle East. Inflation is currently 3.8%, above the Reserve Bank's preferred range of 2%-3% - and this is based on January data.  

We may have to buckle in for further rate hikes. The impact of higher fuel prices is unlikely to show up in inflation figures until April, and most of the big banks are forecasting a May rate rise.

CommBank's rate outlook provides a ray of good news. It points to Australia's tight labour market, and a domestic economy that remains strong.

Even so, a rate hike should always trigger two actions. First, check to see if you're paying a competitive rate on your home loan and other debts. Refinancing can be a simple way to save. Next, check you're earning a decent rate on cash savings. Now is no time for complacency. 

Where to from here for investors? 

Geopolitical issues - and we've seen a few over the past 12 months - have always fuelled uncertainty in global financial markets. 

The war in the Middle East is no exception. More so because the region plays a critical role in global energy supplies. 

For investors, the challenge is riding out the volatility without making emotional decisions. 

It can be tempting to shift money out of shares and share-based exchange traded funds, into cash or other 'safe' investments.  

However, to reinforce my views, let me share with you two findings by UK-based fund manager, Schroders, that are highly relevant at the moment: 

1. Historically, market disruptions after major geopolitical events have been short-lived. Markets have quickly recovered when the alarming headlines begin to subside. 
2. Market recoveries aren't always linear. They can come in bursts, and investors who bail out run the risk of returning to the market after the biggest uptick has occurred. 

Long story short, selling now can cement losses in what may be a short-term downturn, and you could end up paying more to get back into growth assets later on. 

Specific sectors/industries may benefit from the conflict 

As I noted earlier, rising oil prices are (to date) benefiting companies in the energy sector. Defence-based industries may also see increased demand. And, as countries attempt to reduce their reliance on fossil fuels, we could see the renewable energy sector enjoy fresh support. 

Regardless of broader trends, a market downturn can offer good buying opportunities. If your risk tolerance allows it, you may choose to add new industries or sectors to your portfolio while share values are down. That said, I wouldn't be making radical portfolio shifts unless your goals and/or circumstances have also altered dramatically. 

Three factors will get your portfolio through this 

In the past, we've seen that wars and geopolitical crises have generally been temporary relative to long-term investment horizons. 

And, despite numerous conflicts over the past century, quality investments have continued to rise over time. 

So, in my books, now's the time for patience, diversification, and discipline. 

Have the patience to focus on long-term goals instead of being tempted to act based on short-term headlines. 

Embrace diversification as your best line of defence. Portfolios with exposure to a variety of investments are generally better placed to handle any sort of shocks. 

And have the discipline to stay calm and stick to your end goals. 

Yes, there's plenty to be concerned about right now. But hopefully, the conflict in the Middle East won't drag on.  

More broadly, it is hard to argue with thousands of years of history that show a sure-and-steady approach can see your portfolio emerge all the stronger when stability returns.