Maarten Ackerman, Chief Economist at Citadel

Just weeks into the second quarter of 2026 and global markets are once again being disrupted by United States (US) President Donald Trump’s geopolitical strategy. This time, however, the trigger is not tariffs, but the US conflict with Iran, which has unsettled markets, pushed oil prices higher and complicated the global interest rate cycle.

A repeat of market disruption, but with higher stakes

Almost exactly a year ago, President Trump sent the global economy into a panic with the announcement of blanket tariffs on all US trading partners. Markets slumped, before he introduced a pause to allow conditions to stabilise. Now, a similar pattern appears to be playing out, this time through geopolitical escalation. The difference is that Iran is proving far more resilient than expected.

Iran has shown that it is willing to extend the conflict and use its strategic position to disrupt the Strait of Hormuz, one of the world’s most important energy routes. This has placed oil markets, inflation expectations and central bank decisions under renewed pressure.

Why the Strait of Hormuz matters

From an economic point of view, both the US and Iran need a resolution. Iran’s per capita income has halved over the past five years, while the cost of the war to the US was estimated at roughly $11.3 billion in the first six days, with each additional day adding further pressure. Yet, the longer the disruption continues, the more significant the global economic consequences become.

Oil has been trading above $110/barrel and the outlook now depends largely on how long ships are prevented from moving freely through the Strait of Hormuz. Some analysts have suggested that a prolonged closure could push oil towards $160/barrel.

Lessons from previous oil shocks

History provides important context for why this matters. The oil shocks of the 1970s resulted in double‑digit inflation and sharply higher interest rates. The 1973–1974 oil embargo led to a fourfold increase in oil prices, while the 1979–1980 Iranian Revolution triggered another significant inflationary surge, again followed by aggressive monetary tightening.

By contrast, during the 2007–2008 global financial crisis, although oil prices also spiked and contributed to higher inflation, central banks prioritised supporting economic activity and cut interest rates to stimulate growth.

The Russia–Ukraine war offers a closer parallel to the current environment. It represents a supply-driven energy shock, where disruptions pushed oil prices higher, leading to elevated inflation and a more restrictive monetary policy backdrop.

Today, the global economy is less oil-intensive than it was in the 1970s, requiring less energy per unit of gross domestic product (GDP). However, it remains highly sensitive to refined products, freight costs and broader energy supply chains. As a result, the current energy shock is still significant—particularly for regions that remain heavily reliant on Gulf oil and gas.

The impact on central banks and interest rates

At the start of 2026, inflation was finally coming under control and many central banks were moving towards rate cuts. The war has now disrupted that cycle. With oil above $100/barrel for an extended period, inflation expectations are rising again, forcing central banks to become more cautious. The South African Reserve Bank (SARB) has already held rates steady and reassessed its inflation outlook, while the US Federal Reserve (Fed) is likely to remain cautious, with rate cuts potentially delayed until 2027.

Citadel’s three economic scenarios

• The first and most likely, is what we call “stagflation lite”, with a 65% probability. In this scenario, the Strait of Hormuz remains mostly closed, but not completely shut. Oil and gas prices remain elevated, freight and insurance costs stay high and inflation rises. Global growth could reduce by around 0.75%, while inflation could increase by about 1% above the base case.
• The second scenario is full-blown stagflation, with a 35% probability. This would follow a severe escalation of the war, with oil potentially reaching $160/barrel. Inflation could move materially higher, central banks may be forced to tighten further and global growth would come under significant pressure. Europe and Asia would be particularly vulnerable, while emerging markets, including South Africa (SA), would likely face weaker currencies, higher inflation and softer growth.
• The third scenario, de-escalation, carries a probability of less than 10%. This would be the best outcome for markets, but even then, the damage to Gulf energy infrastructure means the impact would continue to be felt for months. Risk appetite would only normalise once energy supply chains recover and central banks are able to resume easing.

What this means for SA

For SA, the risks are clear. The country has increased its dependence on Middle Eastern fuel, with a significant share of diesel and petrol supply now coming from the region. At the same time, the rand has weakened, meaning SA faces a double shock from higher oil prices and currency pressure. This increases inflation risk and could delay the benefits of recent policy reform.

Investing through uncertainty

In this environment, investors should avoid overreacting. At Citadel, we return to four core principles: the future is uncertain and will often surprise; asset allocation drives performance; diversification improves risk-adjusted outcomes and valuation matters.

These principles are designed for moments like this. Portfolios must be diversified across regions and asset classes, with exposure to quality assets that can provide support in both risk-on and risk-off environments.

Equally important is cash-flow planning. Investors need short-term liquidity that is protected from market volatility, medium-term assets that can act as shock absorbers and long-term growth assets that can generate strong inflation beating returns over cycles.

Discipline remains critical

The current environment is difficult, but it is not unprecedented. Markets have faced major crises before, from the global financial crisis to COVID-19. The key is discipline, diversification and ensuring that portfolios are built to withstand uncertainty.

This time is no different.

ENDS