Investing.com – The ongoing conflict in the Middle East, marked by escalating tensions and persistent hostilities, remains a critical risk factor for global stability.
UBS analysts emphasize that while the situation has not yet escalated into a full-scale regional war involving Israel, Iran and their respective allies, the risk of such an escalation is significant.
This heightened uncertainty, compounded by the election of Donald Trump as US president, underscores the need for prudent investment strategies to manage geopolitical risks.
The volatility of the conflict arises from a series of interconnected events, including Israel’s military actions in Gaza and southern Lebanon, as well as skirmishes with Hezbollah and its Iranian proxies.
Iran’s retaliatory strikes with missiles and drones further underscore the potential for a broader confrontation.
While diplomatic efforts have so far failed to ensure a lasting ceasefire or a significant reduction in tensions, the run-up to Trump’s inauguration could see critical developments.
Trump’s previous hardline policies toward Iran and his support for Israel add another layer of unpredictability to the region’s dynamics.
In this context, they emerge as effective hedges for investors seeking to mitigate geopolitical risk. UBS analysts note that prices are especially sensitive to disruptions in the Middle East, given the region’s central role in global energy supplies.
Any escalation that threatens key supply routes, such as the Strait of Hormuz, could drive up oil prices significantly. Historical precedents, such as the 2019 attacks on Saudi Arabia (TADAWUL:), highlight how quickly markets can react to perceived threats.
While the current oil market has not yet fully priced in the risks of disruption in the Middle East, UBS advises maintaining exposure to oil as a safeguard against potential supply shocks.
Gold also provides a reliable hedge, especially in times of increased uncertainty. UBS notes that gold prices have already seen substantial gains this year, reflecting its appeal as a safe haven.
The current risks associated with the conflict, combined with potential changes to US tax and trade policies under Trump, suggest that demand for gold could remain strong.
Additionally, structural factors, such as continued central bank buying amid de-dollarization trends, support a bullish outlook for gold, with UBS projecting prices to reach $2,900 per ounce by the end of 2025.
Ultimately, the Middle East conflict underscores the importance of diversifying investment portfolios.
While market disruptions linked to geopolitical shocks are typically short-lived, the protracted nature of this conflict and its potential global ramifications deserve careful consideration.
UBS highlights that maintaining allocations to oil and gold can help investors navigate this uncertain environment, balancing risks while positioning for long-term stability.