US-Iran Conflict Drives Inflation, Fuels Commodities Boom

The ongoing conflict between the United States and Iran has been a major macroeconomic driver, fueling inflationary pressures on energy, anticipated interest rate hikes by central banks, outperformance in commodities, and geopolitical risk premiums across all asset classes.

Olivier Guillo, Director of Management, notes that initial hopes for normalization raised in June were short-lived as sporadic hostilities resumed, pushing Brent crude prices above $90 per barrel (compared to $72.9 per barrel at the end of June) and European gas prices exceeding 70 euros per megawatt-hour (up from 43.6 euros per megawatt-hour in late June).

The persistent latent conflict is weighing on global and regional growth prospects, as well as inflation expectations.

Meanwhile, climate-related concerns are rising due to droughts, wildfires, and disruptions associated with the 'El Niño' phenomenon, adding a negative triptych for public finances: higher inflation, slower growth, and elevated interest rates.