Operation Rising Lion: Israel’s strike on Iran raises geopolitical concerns in markets
Geopolitical tensions in the Middle East are rising, and investment markets have responded swiftly
Israel has launched a major military operation against Iran, marking an escalation in tensions in the Middle East. The attack resulted in the deaths of high-ranking Iranian military officials and triggered a swift retaliatory drone assault by Iran.
As the world watches closely, the geopolitical tremors have already rippled through global markets, impacting oil prices and increasing demand for safe-haven assets.
What happened?
On 13 June 2025, Israel launched Operation Rising Lion, a significant and coordinated military strike against Iran. Over 200 aircraft were deployed alongside covert operations from within Iran targeting approximately 100 strategic sites, including key nuclear facilities and military infrastructure. Among the casualties were senior Iranian commanders, notably the Revolutionary Guards chief, Hossein Salami and the Iranian military chief, Mohammad Bagheri.
In retaliation, Iran fired more than 100 drones toward Israel. The US publicly distanced itself from the operation, while European powers called for restraint.
What does it mean?
The strike has elevated geopolitical risk, triggering a repricing across global markets. Equity indices fell globally, with US futures dropping 1% and major Asian and European markets declining in tandem. Investors moved into safe-haven assets: gold rose more than 1% and the US dollar appreciated.
Oil markets reacted most acutely. With Iran's proximity to the Strait of Hormuz (a critical route for global oil supply) fears of disruption sent Brent and WTI crude prices surging by ~7%. Traders are now pricing in a higher risk premium on energy, with concerns that further escalation could impact global supply chains and inflation expectations.
The broader question now is whether this conflict escalates further. Iran is expected to respond in kind, and any prolonged exchange could intensify volatility across markets. Two main risks from here are:
- Iran striking US assets in the region, which risks bringing the US into the conflict
- Iran blocking the Strait of Hormuz to disrupt global energy markets
Should either scenario materialise, it would likely prompt a forceful response from global powers. As a result, we believe Iran will be more inclined to target Israel directly rather than risk triggering a broader regional conflict that draws in the United States.
If hostilities remain contained between the two countries, we expect the impact on global asset markets to be limited, given that Iran and Israel together represent only a small share of global economic output and an even smaller portion of global capital markets. That said, the outlook remains highly uncertain.
Given this uncertain environment, we hold a sizeable overweight to gold in our asset allocation which has performed strongly over recent months. Our allocation to Treasury Inflation-Protected Securities (TIPS) will also cushion any re-rating in inflation expectations.
Bottom line
Markets are likely to remain volatile in the short term, with investors seeking refuge in defensive sectors and safe-haven assets. Energy prices are poised to stay elevated as investors demand a higher geopolitical risk premium.
While a large-scale regional war is not yet the base case, the risks are rising. Until there is clarity on Iran’s response and the potential for de-escalation, caution is warranted.
Our asset allocation holds a sizeable overweight to gold, which has historically performed well in volatile geopolitical environments. While our allocation to Treasury Inflation-Protected Securities (TIPS) will cushion any re-rating in inflation expectations.
