March 2026: War, Oil, and Stagflation Fears

March 2026: War, Oil, and Stagflation Fears

March 2026 was dominated by one story: the deepening US-Iran conflict and the energy shock it unleashed. Iranian forces moved to restrict shipping through the Strait of Hormuz, pushing Brent crude above $100 per barrel for the first time since 2022, reigniting inflation fears, and triggering a sharp sell-off across global equity markets. After two months in which investors had rotated confidently away from the US, March reversed the script, with all global equities falling broadly, bonds offering little shelter, and gold surrendering much of its recent gains. It was a forceful reminder that geopolitics can reshape markets rapidly.

The Global Sell-Off

The rotation away from US equities that defined January and February went into reverse in March. Rather than benefiting from a weak dollar and European fiscal optimism, markets outside the USA bore the heaviest losses of the month. The S&P 500 fell approximately 5.0%, a significant decline, but modest compared to the damage sustained across Europe and Asia.

Global equity markets outside the USA fell materially further, with European and Asian indices hit hardest. Countries that depend on Middle Eastern oil through the Strait of Hormuz faced a double blow, surging energy costs threatening near-term growth, and rising inflation expectations forcing a hawkish repricing of interest rate policy. Within equities, energy was the solitary bright spot everywhere, as virtually every other sector finished the month lower. The Bloomberg Commodity Index posted its strongest monthly gain since 2009, driven almost entirely by energy.

FTSE 100 Falls from Record Territory

The FTSE 100, which had broken above 10,000 for the first time in January and remained elevated through February, fell approximately 6.2% in March. The index faced a structural tension unique to its components, higher oil prices boosted Shell and BP, but inflicted damage on airlines, manufacturers, and consumer companies, and the net effect was firmly negative. UK gilt yields surged, with the 10-year yield hitting its highest level since 2008 as markets repriced the inflation outlook, adding further pressure to rate-sensitive sectors including housebuilders and utilities.

The Conflict Escalates

Following the initial strikes on 28 February, the US-Iran conflict showed no sign of swift resolution. Iranian restrictions on Strait of Hormuz shipping, the route through which roughly 20% of global oil passes, drove Brent crude sharply higher, breaking above $100 per barrel for the first time since 2022. Middle Eastern output was curtailed significantly, and markets swung violently on each diplomatic headline. By month end, tentative ceasefire signals provided a partial stabilising force, but oil remained well above its pre-conflict levels.

The economic consequences extended well beyond energy prices. Surging costs threatened to slow consumer spending and corporate margins simultaneously, reviving concerns about stagflation, the toxic combination of rising prices and slowing growth that central banks find most difficult to navigate. Treasury yields rose sharply in the US, and gilt yields followed in the UK, as investors priced out rate cuts and look towards potential hikes.

Bank of England: A Unanimous Hold

The Bank of England held Bank Rate at 3.75% at its 19 March meeting, with all nine members of the Monetary Policy Committee voting unanimously to hold. The contrast with February's close 5-4 split was stark, reflecting the dramatically changed inflation outlook since the conflict erupted.

Before the strikes, the Bank had projected CPI returning to its 2% target as early as June 2026 and markets had priced in an April cut. Both assumptions are now off the table. Estimates point to CPI rising to between 3.0% and 3.5% over coming quarters, driven by higher household energy bills and business input costs. The MPC noted that even a swift resolution would leave energy supply taking time to recover. The next decision falls on 30th  April, but rate cuts in 2026 are now considered far less certain than they appeared a month ago. The ECB also held its deposit rate at 2.0%, striking a similarly cautious tone.

Gold Reverses Course

After gold gave back significant ground in March, falling around 11%, its worst monthly performance since 2008. The decline reflected a shift in the safe-haven’s appeal. A strengthening US dollar, sharply higher Treasury yields, and rising real interest rate expectations all weighed on the non-yielding metal. Investors rotated toward commodities directly linked to energy rather than traditional safe havens.

Gold's longer-term structural drivers, including dollar weakness, geopolitical risk, and central bank buying, remain broadly intact, and the metal is still significantly higher over the past twelve months. But March was a sharp reminder that gold is not immune to macro repricing, particularly when inflation expectations drive real yields sharply higher.

The Portfolios

March was a difficult month for multi-asset portfolios. Unlike February, when divergence between regions rewarded globally diversified investors, March saw declines across virtually every equity market, and rising yields meant bonds and equities fell together, a pattern most associated with supply-driven inflation shocks. There was limited shelter available.

IG's Smart Portfolios had a challenging month, with the energy shock working against most asset classes simultaneously. Whilst our more defensive portfolios were protected somewhat by some of the short dated fixed income exposure, the severity of the macro shock was felt across all risk levels. Supply shocks of this nature have historically proven temporary however.

The Smart Portfolios provide professionally managed, risk-profiled portfolios using BlackRock's iShares ETFs. They consist of five options from Conservative to Aggressive, matching different time horizons and risk tolerances. Automatic rebalancing maintains target allocations, whilst costs significantly below traditional active funds compound meaningfully over time. They are also available in ISA and SIPP structures for tax efficiency. Click to see how you can benefit from professional portfolio management at a fraction of the cost of traditional wealth managers.

Sources: Bloomberg, FTSE Russell, Bank of England, Office for National Statistics, S&P Global Market Intelligence, MSCI, Janus Henderson, LSEG, Portwatch IMF (all data as at 31st March 2026)

Appendix: Vessel Types

Container: Carries standardised intermodal containers (boxes) stacked on deck and below; used for manufactured goods and consumer products.

Dry Bulk: Carries unpackaged dry commodities such as grain, coal, and iron ore loaded loose into the hold.

General Cargo: Carries mixed, individually packaged or palletised goods that don't fit neatly into containers or bulk categories. 

Roll-on/Roll-off (RoRo): Carries wheeled cargo (vehicles, machinery) that is driven on and off the vessel via ramps.

Tanker: Carries liquid cargo in large internal tanks; primarily crude oil and refined petroleum products, but also LNG and chemicals.