The long-term lessons for investors from Iran ceasefire 'relief rally': Emma Varley

The culprit throughout has been energy. For markets, the $120-a-barrel mark has long been treated as a kind of holy grail. Not because it’s magical, but because history suggests that sustained moves beyond it begin to act as a serious drag on global growth. Below that level, higher prices are painful but manageable. Above it, they start to behave like a tax on consumers and businesses alike, raising the risk of recession.

Tuesday’s retreat below $100 moves us meaningfully away from that danger zone. Whether it stays there is another matter.

The ceasefire, after all, is fragile. It excludes Israel and Iran’s ten-point plan still envisages Tehran in control of the Strait of Hormuz – the chokepoint through which roughly a fifth of the world’s oil passes. The gap between a two-week pause and a durable settlement remains vast, and it is that uncertainty that will continue to unsettle markets.

The damage from the elevated-price period is not yet fully unwound. The OECD has already downgraded UK growth forecasts for 2026, warning that inflation could approach 4 per cent if energy costs stay high, and some of that inflationary pressure is already in the pipeline regardless of what happens next at the negotiating table. Mortgage costs have crept up on the back of repriced rate expectations.

Business investment decisions have been deferred. Some of that will take time to reverse even if the ceasefire holds and oil prices continue to fall.

For the Bank of England, the picture is only marginally cleaner than it was: they’re still caught between the rock of inflation and the hard place of stagnation. There are monetary policy tools available, but the deciding factor still lies well beyond Threadneedle Street and on events it cannot control.

That is why duration remains the only variable that truly matters. A ceasefire that holds – and that leads to a broader settlement – changes the calculus entirely. Rate cuts could return to the agenda, borrowing costs would ease, and the Chancellor’s fiscal buffer, under threat from higher debt-servicing costs, would look considerably less precarious.

A ceasefire that collapses, by contrast, could see prices spike sharply again, with markets forced to reprice once more in the wrong direction. Iran’s conditions and Israel’s exclusion make the latter a live risk.

History does offer some comfort. Since World War II, there have been 20 or so major combat campaigns. Almost without exception, they have sparked market anxiety but, just as reliably, failed to derail markets for long. In fact, on 95 per cent of occasions, the S&P 500 found its way back to pre-event levels.

But even if events take longer to resolve — which Trump’s erratic behaviour suggest they might — investors would do well to remember that the greater danger lies closer to home.

Periods like this encourage emotional decision-making. Yet markets have endured wars, oil shocks, financial crises and pandemics before. The sensible response is not to retreat, but to review and search for new investment opportunities.

A diversified portfolio approach has generally helped investors to weather short-term market volatility while remaining on course to achieve their longer-term financial goals.

A broad, diversified approach – that actively adjusts across global equities, fixed interest, gold, and absolute return strategies – has historically helped smooth portfolio outcomes. That flexibility can be particularly valuable not only in stable conditions but through more challenging market environments.

The aim is not to predict every shock, but to ensure portfolios are built to withstand them.​​​​​​​

Emma Varley is Portfolio Manager at the Leeds office of James Hambro & Partners