Global markets are bracing for prolonged instability after the United States launched direct military action against Iran, dramatically escalating a regional conflict that already involved Israel and multiple proxy forces across the Middle East.

US President Donald Trump said “whatever the time is, it's OK, whatever it takes,” to neutralize Iranian threats, a declaration that investors interpreted as signaling a conflict with no clear end in sight.

Equities fell, energy prices surged, and demand jumped for so-called safe-haven assets—investments traditionally viewed as more resilient during geopolitical shocks. For investors in Europe, the stakes are especially high, with policymakers warning that the conflict could reignite inflation pressures just as the region was beginning to stabilize.

US-Israel-Iran conflict escalates: Global markets on alert

Markets reacted immediately to the escalation. Oil and gas futures surged, while European equities recorded sharp declines. European Central Bank’s chief economist, Philip Lane, told the Financial Times that a prolonged war in the Middle East and a persistent fall in oil and gas supplies from the region could cause a “substantial spike” in inflation and a “sharp drop in output” in the Eurozone.

Former Trump national security advisor Javed Ali wrote in The Conversation that the strategic calculus in Washington and Tehran is very different this time, with Iran’s leadership likely seeing the offensive as an existential threat and “no obvious off‑ramp” to avoid further escalation.

Market analysts are rushing to adjust their portfolios as geopolitical tensions escalate, but this time government bonds, traditionally viewed as a safe haven, are underperforming, with German Bund yields climbing and stoking inflation concerns.

Seb Barker, chief market strategist at hedge fund Marshall Wace, told the Financial Times that the developments in the Gulf “reinforce” the case for boosting allocations to what he describes as “non-bond safe haven assets.”

Understanding safe-haven assets: Stability in times of war

What defines a safe-haven asset?

A safe-haven asset is an investment that tends to hold—or increase—its value during periods of market stress, war, or economic uncertainty. These assets are typically liquid, widely trusted, and less sensitive to short-term growth expectations.

Historically, safe havens have included gold, government bonds issued by highly rated countries, certain currencies, and, more recently, alternative assets such as bitcoin. The logic is not that these assets are risk-free, but that they are perceived as comparatively stable when investors lose confidence in growth assets like stocks or real estate.

Analyst insights: How the Iran war could reshape markets

Global oil markets have so far reacted mutedly to the Iran conflict, according to the Brookings Institution, a nonpartisan US think tank. Unlike the sharp 7% intraday rise in Brent crude after Russia’s invasion of Ukraine in 2022, Brent increased only about 4.5% in early March.

Brookings highlights the strategic importance of the Strait of Hormuz, through which roughly 20% of global oil and LNG supplies pass. Limited alternatives exist—Saudi Arabia and the UAE could reroute about 2.6 million barrels per day by pipeline, but LNG has no diversion options. While Iran’s own crude exports are smaller, disruption to processing or export facilities could still trigger significant market effects.

The analysis suggests that energy markets may be underestimating the long-term risks of the conflict, even as investors look to safe-haven assets for stability.

ECB warns of inflation spike across the Eurozone

The European Central Bank has warned that the war could push inflation higher across the eurozone, primarily through energy prices and supply-chain disruptions.

European natural gas prices surged more than 50% following QatarEnergy’s suspension of liquefied natural gas (LNG) production after attacks on its facilities, marking one of the largest price spikes in years. Any prolonged disruption of Gulf energy supplies would further strain households, businesses, and central banks already navigating a fragile economic recovery.

Energy market impact: European gas prices soar amid Qatar LNG halt

Oil and gas markets have reacted sharply to the escalation. Traders are pricing in the risk that shipping routes through the Strait of Hormuz could be threatened, while LNG markets are sensitive to any reduction in exports from the Gulf.

For Europe, which remains heavily dependent on imported energy, the surge in gas prices underscores how geopolitical shocks abroad can quickly translate into higher costs at home.

Top safe-haven assets for investors in Europe

Gold: The traditional refuge

Gold has historically been the world’s default hedge against war and inflation. It is priced globally, not tied to any single government, and often benefits when confidence in monetary stability weakens.

Government bonds: Stability in debt

Debt issued by countries with strong credit profiles has typically served as a refuge during crises, although rising inflation risks complicate the outlook for fixed income.

The US dollar: Global reserve currency

Despite political polarization, the dollar remains the dominant global reserve currency and often strengthens during periods of global stress, particularly when conflict involves emerging markets or energy exporters.

Bitcoin and digital assets: New age safe havens

While still volatile, bitcoin has increasingly been discussed as a non-sovereign hedge during geopolitical crises. Some investors view it as a hedge against currency debasement and capital controls, though its behavior during wars remains inconsistent.

A September 2025 research paper by Campbell R. Harvey highlights that while both gold and bitcoin are limited-supply assets, gold offers centuries of crisis-tested stability, whereas bitcoin provides potential diversification benefits but comes with unique technological and market risks.

Navigating uncertainty: What the war means for your money

Periods of geopolitical upheaval tend to expose how concentrated—or fragile—financial positions can be. The renewed focus on safe havens reflects a broader shift toward resilience, liquidity, and flexibility rather than chasing growth at all costs.

For investors in Europe, creating a more defensive portfolio amid the conflict could include:

• Diversify across euro-denominated assets: Consider a mix of gold, government bonds, and high-quality corporate bonds alongside equities to reduce volatility.

• Maintain liquidity: Keeping a portion of capital in cash or highly liquid instruments allows for flexibility if markets swing suddenly.

• Focus on regional and sector diversification: Spread investments across countries and industries to mitigate country-specific or energy-related risks.

• Include inflation-hedged instruments: With the ECB warning of higher inflation, inflation-linked bonds and certain commodities can help preserve purchasing power.

• Review concentration risks: Avoid overexposure to sectors or companies heavily dependent on Middle Eastern energy supply chains or sensitive to geopolitical shocks.

Historically, markets tend to recover after periods of volatility, so panicking and selling assets abruptly is rarely advisable. While the duration of the conflict is uncertain, investors may benefit from thoughtfully reallocating their portfolios to withstand turbulent conditions while positioning for recovery once geopolitical tensions ease.

Consult a financial advisor for personalized advice on your financial situation.