What the Iran War Means for Investors

What the Iran War Means for Investors

The military escalation between the United States, Israel and Iran is increasingly turning into a geopolitical stress test for global financial markets. At the same time, the shifting landscape may open up new opportunities for investors, writes Beat Wittmann in his opinion piece.

The war between the United States and Israel on one side and Iran on the other has rapidly entered an escalation phase, with significant consequences for geopolitics, the global economy, and financial markets. Titled by US and Israeli officials as operation «Epic Fury,» the campaign reflects a deliberate attempt to force regime change in Iran while reshaping regional power dynamics. We expect the escalation phase to last from several days to a few weeks, depending on the reaction of financial markets, the intensity of military operations and collateral damage across the Middle East. While Iran does not pose a direct military threat to the United States or Israel, the conflict represents another example of unilateral intervention reminiscent of earlier US wars such as Iraq.

The Growing Dominance of Hard-Power Geopolitics

The war illustrates once again after Russia’s unlawful invasion of Ukraine the growing dominance of hard-power geopolitics in international affairs. Multiple breaches of international law highlight the erosion of the rules-based global order, where strategic rivalry overrides legal frameworks and multilateral institutions. The United States launched the campaign without consultation with its allies, despite relying on European logistical infrastructure for military operations. The conflict therefore once more exposes the widening gap between unilateral decision-making and the cooperative security architecture that previously characterized Western alliances.

«Iran cannot realistically be invaded or occupied.»

Strategic Realities of War with Iran

Strategically, Iran differs fundamentally from previous military targets such as Iraq or Afghanistan. With a population of roughly 90 million, vast mountainous terrain, and an entrenched political and military system, Iran cannot realistically be invaded or occupied. Its armed forces and the Islamic Revolutionary Guard Corps maintain extensive missile capabilities and regional proxy networks, while the country’s geography provides substantial defensive depth. The conflict is therefore likely to unfold primarily through air strikes, missile exchanges, cyber operations, and attacks on critical infrastructure rather than conventional ground warfare.

Modern warfare highlights the decisive importance of critical infrastructure. Energy facilities, desalination plants, transportation networks, electricity grids, and communications systems represent vulnerable targets capable of paralyzing an economy without a full-scale invasion. Disrupting such infrastructure cripples economic activity without direct military occupation, making infrastructure warfare a central element of contemporary conflict.

Strategic Role of Energy Markets

From a geopolitical perspective, the conflict has clearly entered its escalation phase. The naming of the campaign “Epic Fury” reflects the intention to apply maximum pressure on the Iranian regime. However, the duration of this phase is likely limited because energy markets impose powerful constraints on prolonged warfare. Iran controls access to the Strait of Hormuz, a narrow maritime chokepoint through which approximately 20 percent of global oil supply transits. The disruption of shipping through this corridor generates immediate and significant spikes in global energy prices.

Iran, therefore, has strong incentives to regionalize the conflict by targeting maritime routes, energy infrastructure, and allied assets in the Gulf. Such actions primarily affect Asia—the Gulf states’ most important energy market—but also impact Europe and, to a lesser extent, the United States. The conflict, therefore, carries global economic relevance even if direct military operations remain concentrated in the Middle East.

«The most plausible scenario is regime transformation toward an authoritarian but economically pragmatic government.»

Three Possible Political Scenarios for Iran

First, Trump’s demand that Iran surrender «unconditionally» is delusional, because Iran is neither Germany nor Japan in 1945 and cannot be simply forced to capitulate in the way those states did after total military defeat. 

Three broad scenarios could shape the political outcome for Iran:

• The first is the emergence of a failed state similar to Iraq after the 2003 US invasion. In this case, the Iranian political system collapses into fragmentation and internal conflict. Given Iran’s far larger population and territory, the consequences would be significantly more severe than in Iraq. Regional powers such as Turkey, Saudi Arabia, and Egypt fear and oppose such an outcome because it would destabilize the Middle East and generate massive refugee flows toward neighboring regions and Europe.
• The second and most plausible scenario is regime transformation toward an authoritarian but economically pragmatic government. In this case, the clerical system would be replaced or reshaped by technocratic leadership supported by the Revolutionary Guards. Such a structure would maintain centralized political authority while opening the economy to sanction relief, international investment, and trade.
• The third and least likely scenario is a democratic transition toward representative elections and a secular political order. Although Iran’s population—particularly its younger generation—is highly educated and increasingly secular, such a transformation would require stable institutions and an orderly political transition that appears unlikely under external military pressure.

Consequences for Investors

For global investors, the conflict introduces immediate geoeconomic risks. Energy markets represent the primary transmission channel. Disruptions in the Strait of Hormuz and attacks on regional energy infrastructure rapidly push oil and gas prices higher. Such shocks feed into global inflation, reduce consumer purchasing power, compress corporate margins, damage investor sentiment and increase financial market volatility and losses.

Asia remains particularly vulnerable because of its heavy reliance on Middle Eastern energy imports. Europe is somewhat less exposed due to diversification of liquefied natural gas supplies and strategic reserves, though it would still experience significant price transmission effects. Shipping disruptions in the Gulf would also increase transportation and insurance costs, affecting global supply chains and trade flows.

Financial markets react quickly to shocks of this magnitude. Spiking energy prices, supply-chain disruption and uncertainty, and potential escalation trigger sharp movements in equities, currencies, and bond markets. Domestic political dynamics in the United States add further uncertainty, as public opinion remains divided and would shift rapidly downwards if casualties rise or gasoline prices increase.

«The Iran conflict reinforces the ongoing fragmentation of the global economic system.»

Geopolitical Fragmentation and Strategic Investment Implications

At a broader structural level, the Iran conflict reinforces the ongoing fragmentation of the global economic system into three geopolitical blocs: the US-centric Americas, the EU-centric European system, and a China-centered Asian sphere. Economic interdependence continues but is increasingly managed through geopolitical risk considerations, supply-chain diversification, and regional investment strategies.

China plays a crucial role in this evolving order because stability in the Middle East is vital for its energy security. As the region remains China’s primary source of oil and gas imports, Beijing has strong incentives to limit instability and maintain predictable relations with both regional actors and the United States.

For investors, these developments reinforce the importance of sectors linked to national security, technological innovation, and infrastructure resilience. Defense industries, dual-use technologies, and critical infrastructure investments will receive sustained government support as geopolitical tensions reshape national priorities. Europe in particular will benefit from rising defense spending, industrial modernization, and efforts to achieve greater strategic autonomy. Financial centers such as Switzerland also gain from their history and reputation as safe havens during periods of geopolitical turmoil.

In this environment, investors focus on geographically aligned portfolios and reference currencies. European equities, defense and dual-use technology companies, infrastructure investments, and euro- and Swiss-franc-denominated assets will therefore continue to benefit from the structural transformation of the geopolitical and economic landscape.

Beat Wittmann is Chairman and Partner of the Zurich-based financial advisory firm Porta Advisors. A native of the Swiss canton of Graubünden, he looks back on a more than 30-year career in Swiss banking, including senior roles at the Swiss large banks UBS and Credit Suisse as well as at Clariden Leu and Julius Bär. Between 2009 and 2015, he first worked independently before joining the Swiss Raiffeisen Group in asset management.