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The ongoing conflict in Iran and the effective closure of the Strait of Hormuz have increased market volatility significantly and pushed oil prices sharply higher. Both Brent crude and WTI have jumped dramatically in just a few days, approaching levels last seen in 2022 when Russia invaded Ukraine. This has driven significant uncertainty across global markets, with headlines mentioning a “global economic downturn,” “stagflation,” and more.
The safety of civilians and our troops is the most important consideration in this conflict. Still, for investors, history suggests that maintaining a longer-term perspective is the best way to achieve financial success when faced with significant uncertainty. A quote often attributed to Winston Churchill is "the farther back you can look, the farther forward you are likely to see." The same could be said of energy price shocks which have occurred every decade or so. While each situation is unique, there is a clear pattern of oil prices surging in response to geopolitical conflict, the resulting market volatility, and the subsequent calm and recovery.
The situation is unfolding in real time and there are no guarantees as to when there will be stability in the region or in financial markets. Events over the past few years including other Middle East conflicts, inflation, trade wars, and Venezuela earlier this year, all provide important context and perspective. What should investors keep in mind as they process all of this?
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