This article originally appeared on Morningstar’s UK website. It has been amended for an Australian audience.

Key takeaways

  • Since the conflict started on Feb. 28, energy stocks have so far outperformed on spiking oil prices.
  • Despite an early rout, bonds could rally in the case of a prolonged conflict and economic downturn.
  • Investors should not overlook wider market trends like AI.

As the war in Iran rumbles on, and the outcome remains highly uncertain, Morningstar’s chief investment officer for EMEA, Mike Coop, weighs in on where investors can look for returns.

Early in the war, energy futures and energy stocks emerged as outperformers, as higher oil and gas prices feed through into profits. That trend looks set to continue—barring direct damage to companies’ facilities—according to Coop. He cautions, however, that it’s “a bit late” to buy such assets right now.

Brent oil prices spiked close to USD 120 a barrel in the middle of March on continued disruption to Gulf energy infrastructure. While Coop notes that oil prices could be expected to remain above USD 100 “for some time”, they currently look set to remain below the highs of USD 150 and above seen in prior crises.

As such, diversification is key across assets and currencies, he says, particularly for those with lower risk tolerance.

“For other investors, in our experience, it’s often creating opportunities,” Coop says. “If it turns out that things do appear to get worse in the short term, if there’s a strong market reaction, I think we would see that as an opportunity,” he continues.

Where to invest in a market shock: bonds, gold, and defensive stocks

Depending on the extent and duration of the war, Coop warned of a possible juncture, when the risks could flip from short and transitory to more long-term and systemic.

“There is this weird tipping point though, where it switches from being an inflationary shock to one that starts to hurt growth,“ Coop says. “In that environment, it’s the defensive assets that can be durable.”

Defensive assets typically include government bonds, select equities, such as consumer staples, utilities and healthcare, and safe havens such as gold.

The conflict has sparked a rout in global bond markets on renewed inflation risks, causing yields to spike. In March, UK benchmark 10-year gilt yields hit their highest level since the 2008 financial crisis, as a slew of key central banks moved to hold rates steady. Closer to home, we see this trend continue. Gold prices hit record highs in early 2026.

Other governments’ borrowing costs have also marched to multiyear highs. However, that trend could reverse if high inflation ultimately feeds through into an economic downturn.

“They’ve sold off as investors have rethought their interest rate expectations. But there’s a point at which, if a demand disruption comes through, actually bonds could rally quite strongly,” Coop says.

Inflation-linked bonds, also known as index-linked bonds, whose returns adjust in line with inflation, can provide another effective hedge, he says.

“There’s the immediate impact. But the further out you go, if you really thought this is going to be a severe shock, then you would be looking at some of those more defensive assets as being beneficiaries, some of the safe havens,” Coop adds.

Why AI stocks still matter amid the Iran War

Even as the war continues to dominate headlines and market moves, Coop says investors should remain focused on fundamentals and wider economic themes.

“People shouldn’t take their eye off the ball when it comes to the effect of AI,” Coop says.

Artificial intelligence remains a key market trend, commanding historic levels of funding while investors continue to weigh its economic benefits and implications for other industries.

Morningstar analysts recently downgraded several companies whose competitive advantage they believe is being eroded by AI. Examples of such include businesses in the enterprise software, services and payroll sectors include Workday WDAY, Adobe ADBE, and Salesforce CRM.

“I think there’s nothing specifically around oil itself that would cause people not to hold, but it’s more vulnerable companies, with weak balance sheets, where they’re particularly exposed. You want to have comfort that the price of the asset already reflects the bad news, and that they’ve got the staying power,” Coop says.

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