In our April Market Commentary, March 2026 will be remembered as the month when a single chokepoint in the Persian Gulf reshaped the economic outlook for the entire world. What began as a strong start to the year for most major economies was overtaken by the consequences of US-Israeli strikes on Iran and the effective closure of the Strait of Hormuz, through which approximately 20% of the world’s oil and liquefied natural gas passes.

As we noted last month, the FTSE 100 had been edging towards 11,000. That optimism now feels like a different era.

The Event That Defined the Month

The US-Israeli bombing of Iran on 28 February 2026 triggered the most significant energy market disruption since Russia’s invasion of Ukraine in 2022. By mid-March, Brent crude had surged past $100 per barrel for the first time since 2022, peaking close to $120 as Iran launched retaliatory strikes across Gulf infrastructure. It closed March trading around $112. European natural gas prices surged 70% over the course of the month.

On 11 March, the International Energy Agency coordinated the largest emergency oil reserve release in history: 400 million barrels from 32 nations, more than double the previous record of 182.7 million barrels set in 2022. Analysts estimated it would cover approximately 20 days of normal Hormuz flows. It stabilised markets temporarily, but it did not resolve the underlying question. Until the Strait reopens, every economic forecast remains conditional.

President Trump’s announcement on 23 March of a pause in military action for renewed talks briefly calmed markets. A Financial Times investigation subsequently revealed that $580 million of bets on falling oil prices had been placed just 15 minutes before that statement was published. The controversy it generated illustrated the extraordinary sensitivity of markets to every signal from Washington during this period.

United States: Stagflation Risk, Held Rates and a Changing Fed

The Federal Reserve held rates steady at 3.5% to 3.75% at its 17 to 18 March meeting, voting 11 to 1 to stand pat. Chair Jerome Powell acknowledged the conflict as a potential stagflationary shock, simultaneously pushing inflation higher and growth lower, though he was careful to note the situation did not yet warrant the label stagflation in its more severe historical sense.

The Fed’s revised projections for 2026 pencilled in one rate cut rather than the previously expected two. GDP growth was revised slightly upward to 2.4%, but both headline and core PCE inflation forecasts were raised to 2.7%. Powell was direct about the conditionality: “The rate forecast is conditional on the performance of the economy, so if we don’t see that progress, then you won’t see the rate cut.”

US unemployment rose to 4.4% in February and petrol prices crossed $4 per gallon nationally for the first time since late 2023, with California seeing prices above $5. Goldman Sachs warned that if oil prices remain elevated through year-end, CPI inflation could reach 3%. The S&P 500 fell around 5% over the month, from 6,816 on 3 March to around 6,477 by 27 March, before a partial recovery following Trump’s ceasefire statement. It has since returned to record highs as conflict end-stage signals have grown more credible.

The March meeting was also technically Powell’s last as Fed Chair before Kevin Warsh’s confirmation process moves forward, adding a layer of institutional uncertainty to an already complex picture. A footnote to the month: US Attorney Jeanine Pirro’s subpoena of Powell regarding the Fed’s headquarters renovation was rejected by a federal judge, who ruled the effort was simply designed to pressure Powell into cutting rates. Pirro is appealing.

On trade, the Supreme Court’s February IEEPA ruling prompted the administration to invoke Section 122 of the Trade Act of 1974, allowing tariffs of up to 15% for 150 days. These expire on 24 July 2026 unless extended by Congress, with mid-term election politics making any extension highly uncertain.

United Kingdom: Record Highs Behind Us, Uncertainty Ahead

The FTSE 100 reached its all-time closing high of 10,910.55 on 27 February, a record that now looks set to stand for some time. By 23 March it had fallen to 9,894, down 7% on the month, before recovering to close March at 10,176. BP and Shell were standout performers within the index, benefiting from elevated oil prices. Banking stocks and travel and leisure names lagged materially.

The Bank of England held Bank Rate at 3.75% in a unanimous 9 to 0 vote on 19 March, the first unanimous decision since September 2021. The unanimity reflected a shared sense that the situation demanded caution rather than action, but it did not signal comfort. Markets that had priced in rate cuts by April or May were, by late March, beginning to price in the possibility of hikes later in the year. UK inflation stood at 3% in February, a figure that does not yet reflect the energy shock. The Bank’s own preliminary estimates suggest CPI is likely to be between 3% and 3.5% over the next couple of quarters. Governor Andrew Bailey cautioned against assuming rate rises were coming, but the data dependency of every future decision was made explicit.

Diesel prices hit their highest level since December 2022 on 30 March, reaching 181.2p per litre, a 27% rise since the start of the bombing campaign. Average petrol reached 152p per litre, up 14% over the same period. The government held emergency COBRA meetings, and a means-tested energy allowance in the Autumn has been promised if required. The planned fuel duty increase from September is under significant political pressure.

Chancellor Rachel Reeves delivered her Spring Statement on 3 March against this backdrop, with the Office for Budget Responsibility acknowledging the conflict could have very significant impacts on the UK economy. While energy bills are set to fall in the short term due to a 7% reduction in the price cap, the trajectory for food costs, business energy bills and household finances more broadly is upward.

London property prices declined for a sixth consecutive month in January. Mortgage lenders pulled deals as inflation expectations shifted rapidly. The key point for anyone with a fixed rate expiry approaching is that mortgage pricing is determined by where lenders expect rates to go, not where they currently are. A Bank of England hold in March does not prevent mortgage rates from rising while this level of uncertainty persists.

Europe: From Encouraging Start to Stagnation Risk

The Eurozone entered March in reasonable shape. The Composite PMI had reached 51.9 in February, its best reading in some time. By late March, the same indicator was pointing to near stagnation, with input costs rising at their fastest pace in three years. The OECD cut its Eurozone growth forecast by 0.4 percentage points to 0.8% for 2026.

The European Central Bank held its main refinancing rate at 2.15% at its 19 March meeting, interpreted as hawkish given the circumstances. ECB President Christine Lagarde revised headline inflation projections to 2.6% for 2026, 2% in 2027 and 2.1% in 2028. She stated the bank would “do everything necessary” to keep inflation under control, a deliberate echo of the ECB’s 2022 communication. The ECB published three scenarios for oil: a baseline at $90 per barrel, an adverse scenario near $120, and a severe scenario approaching $150. In the adverse scenario, Eurozone growth could be 0.3 percentage points below baseline and inflation could breach 4%.

The natural gas situation is particularly concerning for Europe. The Ras Laffan industrial facility in Qatar, which produces approximately 20% of global LNG, has been offline since 2 March following infrastructure damage from Iranian airstrikes. European gas storage entered the summer refill season already depleted after a harsh winter. What might have been a short-term disruption has become a structural supply deficit with implications extending well into 2027.

German harmonised inflation jumped to 2.8% in March from 2.0% in February, driven by energy prices rising 7.2% year on year. France passed its 2026 budget by invoking Article 49.3, bypassing a parliamentary vote and abandoning most of its spending reduction ambitions. France’s fiscal deficit relative to GDP is unlikely to narrow meaningfully this year.

A less-reported consequence deserves attention. Urea prices have risen more than 40% since mid-February, because natural gas is the primary feedstock for nitrogen fertilisers. Higher fertiliser costs flowing through to 2027 crop yields and food prices is not a short-term spike. It is a medium-term ripple with implications for household budgets well beyond the energy bill.

Far East: China Holds the Line, Japan and Korea on Alert

China opened March with its annual Two Sessions meetings, setting a GDP growth target of 4.5% to 5% for 2026, the slowest projected growth since the early 1990s. The target reflected headwinds already present before the conflict: weak domestic consumption, the ongoing property sector adjustment, and trade friction with the US. The 15th Five-Year Plan, covering 2026 to 2030, placed AI-driven industrial modernisation at the centre of China’s strategic agenda.

China’s energy exposure is significant. Gulf producers have cut total output by more than 11 million barrels per day as Hormuz flows have ground to a halt. China’s strategic reserves provide a buffer, but sustained disruption will raise production costs for steel, chemicals and electronics, weakening export competitiveness at a sensitive moment. The postponement of the Trump-Xi summit from late March to 14 to 15 May removes a key near-term confidence signal for US-China trade relations.

Japan imports nearly all of its energy and relies on the Strait of Hormuz for approximately 70% of total oil imports. Japan released approximately 80 million barrels from national reserves starting 18 March as part of the IEA’s coordinated global emergency response. South Korea activated a 100 trillion won market stabilisation programme worth approximately $68 billion. Japan’s Cabinet Office warned that a sustained 10% increase in crude prices could add up to 0.3 percentage points to consumer inflation over about a year, describing the risk as lasting rather than transitory.

Emerging Markets: Winners and Losers Diverge Sharply

The conflict has drawn a sharp line between commodity exporters and energy importers across the developing world. The IEA noted that approximately 84% of crude oil and 83% of LNG passing through Hormuz in 2024 was bound for Asian markets, making the region’s exposure structural.

Brazil and Peru have benefited from elevated metals and agricultural commodity prices. India faces a more complex position: emergency powers were invoked to redirect LPG supplies from industrial to household use, and India faces secondary US tariff threats of up to 25% on goods if it purchases Iranian crude outside the current sanctions waiver. Across Southeast Asia, emergency responses have ranged from Thailand encouraging citizens to use the stairs rather than lifts, to Bangladesh rationing cooking gas and stationing troops at oil depots, to the Philippines declaring a national energy emergency and implementing a four-day government work week.

What This Means for Your Portfolio

Markets hate uncertainty more than they hate bad news. The encouraging news, if it can be called that, is that the range of outcomes is beginning to narrow as ceasefire signals grow more credible and the S&P 500 has returned to record highs. For long-term investors, the core principle applies as firmly now as it did during the Covid sell-off, the 2022 inflation shock, and the Liberation Day tariff panic: short-term geopolitical events have consistently rewarded those who maintained perspective and resisted the urge to react.

A few key things to carry into April:

• Oil remains the key variable. The Strait of Hormuz reopening is the single event that resets the baseline for energy prices, inflation expectations, mortgage pricing and central bank decisions simultaneously
• Do not confuse mortgage lender rate moves with Bank of England decisions. The BoE holding in March does not protect you from fixed rate increases if markets are pricing in future hikes
• Energy sector exposure has a role in diversified portfolios. BP and Shell’s outperformance in March illustrates how sector diversification provides a natural partial hedge within equity portfolios during energy shocks
• Food and fertiliser costs are a slow-burn secondary effect. The 40% rise in urea prices will not appear in food bills immediately, but it will by 2027
• The Trump-Xi summit in May matters. Its outcome will be a meaningful signal for global trade confidence and US-China relations at a moment when both matter enormously