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Middle East conflict is moving markets: What investors should know

By Ben Bakkum, CFA, CFP®

Sr. Investment Strategist, Betterment |

Published Mar. 10, 2026

Middle East conflict is moving markets: What investors should know Mar 10, 2026 7:00:44 PM Nearly a year after sweeping tariffs sent global stocks into a tailspin, financial markets are again navigating a period of heightened uncertainty. Escalating geopolitical tension, including the conflict in Iran and concerns over protracted oil supply disruptions at the Strait of Hormuz, have pushed energy costs higher for businesses and households. As shown in the chart below, oil prices rose to $120 per barrel on March 9—which is double the level at the beginning of the year—before pulling back following President Trump’s comments that the war would be resolved “very soon” and that he would waive “certain oil-related sanctions to reduce prices.” Despite the pullback, the timeline for resolution remains unclear, and uncertainty around the conflict is likely to keep commodity markets volatile in the near term. The hostilities primarily impact U.S. companies and consumers through inflation. Rising oil costs push gasoline prices higher at the pump, reducing household spending on other goods and services. Firming inflation also complicates the Federal Reserve’s path forward, potentially delaying or reducing rate cuts. This, in turn, could push longer-term rates higher, raising borrowing costs for businesses and weighing on their stock valuations. Yet we’ve also seen a stronger market reaction outside the U.S. The chart below illustrates the heavier selling in stock markets such as Japan and South Korea relative to the S&P 500 since the conflict began—though both indices had jumped ahead of the American market earlier in the year. The steeper declines in Japanese and Korean equities can be attributed to: Japan and Korea’s oil import dependency on the Middle East. Both countries source the vast majority of their imports from the region, while the U.S. stands as a net exporter of oil. Their markets have a heavy weighting to energy-intensive industries such as semiconductor manufacturing and hardware production. Demand for a currency safe haven has strengthened the dollar, amplifying losses for dollar-based investors in international exposures denominated in local Asian currencies, including the yen. A knee-jerk reversal in what had become an overcrowded trade in Asian tech stocks, buoyed by AI demand. As an example of investor exposure to these markets, the Betterment Core portfolio primarily allocates to Japanese and Korean stocks via the Vanguard FTSE Developed Markets ETF (Ticker: VEA), which is 20% Japanese stocks and 7% Korean. A 90% stock 10% bond Core portfolio holds a 25.5% target weight to VEA, indicating the overall portfolio’s exposure to Japanese and Korean equities approximates 5% and 2%, respectively. How investors might think about managing their portfolios during market volatility Diversify across not just geographies but asset classes. Even as rates have recently ticked up, bonds have provided ballast to portfolios as stocks gyrate. Treasury Inflation Protected Securities have performed particularly well relative to other common portfolio allocations in the midst of this inflation scare. Where possible, make use of automated tax-loss harvesting. Dramatic swings in asset prices intraday like we saw on March 9th provide an opportunity to tax loss harvest before the market snaps back.

Key takeaways

The war in Iran has led to elevated oil prices and inflation concerns, driving market volatility.
Asian markets (Japan, South Korea) fell more than the S&P 500 due to oil dependency and an unwinding of a crowded trade.
Sustained inflation complicates the Federal Reserve’s strategy, potentially leading to fewer or more delayed interest rate cuts.
Diversification and tools like tax-loss harvesting can help investors manage recent market swings.

Nearly a year after sweeping tariffs sent global stocks into a tailspin, financial markets are again navigating a period of heightened uncertainty. Escalating geopolitical tension, including the conflict in Iran and concerns over protracted oil supply disruptions at the Strait of Hormuz, have pushed energy costs higher for businesses and households.

As shown in the chart below, oil prices rose to $120 per barrel on March 9—which is double the level at the beginning of the year—before pulling back following President Trump’s comments that the war would be resolved “very soon” and that he would waive “certain oil-related sanctions to reduce prices.” Despite the pullback, the timeline for resolution remains unclear, and uncertainty around the conflict is likely to keep commodity markets volatile in the near term.

The hostilities primarily impact U.S. companies and consumers through inflation. Rising oil costs push gasoline prices higher at the pump, reducing household spending on other goods and services. Firming inflation also complicates the Federal Reserve’s path forward, potentially delaying or reducing rate cuts. This, in turn, could push longer-term rates higher, raising borrowing costs for businesses and weighing on their stock valuations.

Yet we’ve also seen a stronger market reaction outside the U.S. The chart below illustrates the heavier selling in stock markets such as Japan and South Korea relative to the S&P 500 since the conflict began—though both indices had jumped ahead of the American market earlier in the year.

The steeper declines in Japanese and Korean equities can be attributed to:

Japan and Korea’s oil import dependency on the Middle East. Both countries source the vast majority of their imports from the region, while the U.S. stands as a net exporter of oil.
Their markets have a heavy weighting to energy-intensive industries such as semiconductor manufacturing and hardware production.
Demand for a currency safe haven has strengthened the dollar, amplifying losses for dollar-based investors in international exposures denominated in local Asian currencies, including the yen.
A knee-jerk reversal in what had become an overcrowded trade in Asian tech stocks, buoyed by AI demand.

As an example of investor exposure to these markets, the Betterment Core portfolio primarily allocates to Japanese and Korean stocks via the Vanguard FTSE Developed Markets ETF (Ticker: VEA), which is 20% Japanese stocks and 7% Korean. A 90% stock 10% bond Core portfolio holds a 25.5% target weight to VEA, indicating the overall portfolio’s exposure to Japanese and Korean equities approximates 5% and 2%, respectively.

How investors might think about managing their portfolios during market volatility

Diversify across not just geographies but asset classes. Even as rates have recently ticked up, bonds have provided ballast to portfolios as stocks gyrate. Treasury Inflation Protected Securities have performed particularly well relative to other common portfolio allocations in the midst of this inflation scare.
Where possible, make use of automated tax-loss harvesting. Dramatic swings in asset prices intraday like we saw on March 9th provide an opportunity to tax loss harvest before the market snaps back.