ALTERNATIVE MARKETS UPDATE – MID MARCH 2026

The current war with Iran began in late February 2026, when the United States and Israel launched a coordinated military campaign targeting Iran’s nuclear programme, missile infrastructure, and senior leadership. The opening phase of the conflict resembled a decapitation strategy, with early strikes reportedly aimed at eliminating key political and military decision-makers in order to disrupt Iran’s command structure and weaken the regime’s ability to coordinate a response. Following these initial attacks, the campaign transitioned into a broader air superiority and strategic degradation effort, involving sustained strikes against military installations, missile launch sites, and critical infrastructure across the country. Iran subsequently retaliated with ballistic missiles and drones targeting Israel and U.S. military assets across the region, turning the confrontation into a sustained exchange of strikes rather than a limited punitive operation. As regional actors and Iranian proxy forces became increasingly involved, the conflict has gradually regionalised into a wider Middle Eastern confrontation, raising concerns about broader geopolitical escalation and potential disruptions to energy markets and global trade routes.

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RESEARCH PERSPECTIVE VOL. 271 March 2026 Alternative Markets Update The current war with Iran began in late February 2026, when the United States and Israel launched a coordinated military campaign targeting Iran’s nuclear programme, missile infrastructure, and senior leadership. The opening phase of the conflict resembled a decapitation strategy, with early strikes reportedly aimed at eliminating key political and military decision-makers in order to disrupt Iran’s command structure and weaken the regime’s ability to coordinate a response. Following these initial attacks, the campaign transitioned into a broader air superiority and strategic degradation effort, involving sustained strikes against military installations, missile launch sites, and critical infrastructure across the country. Iran subsequently retaliated with ballistic missiles and drones targeting Israel and U.S. military assets across the region, turning the confrontation into a sustained exchange of strikes rather than a limited punitive operation. As regional actors and Iranian proxy forces became increasingly involved, the conflict has gradually regionalised into a wider Middle Eastern confrontation, raising concerns about broader geopolitical escalation and potential disruptions to energy markets and global trade routes. A key geopolitical risk emerging from the conflict concerns the Strait of Hormuz, one of the world’s most strategically important maritime chokepoints. The narrow waterway connects the Persian Gulf with global shipping routes and is estimated to handle roughly one-fifth of global oil trade, making it critical for energy markets and global supply chains. As tensions escalated, Iran signalled its willingness to disrupt traffic through the strait, including attempts to deploy naval mines and threaten commercial vessels operating in the region. Such actions reflect a long-standing element of Iran’s strategic doctrine, which views the ability to interfere with Hormuz shipping as a powerful deterrent and bargaining tool in times of conflict. Any sustained disruption to the strait would have immediate implications for global oil prices, shipping insurance costs, and broader financial markets, given the concentration of energy exports from Gulf producers that pass through this corridor. Oil markets have been closely monitoring the conflict given the disruption to supply from the Persian Gulf. In response to rising geopolitical risks, OPEC announced production increases aimed at stabilising global supply and preventing a sustained spike in crude prices. At the same time, the International Energy Agency (IEA) coordinated the release of around 400 million barrels of oil from strategic reserves among member countries. These measures are intended to offset supply disruptions and reassure markets that sufficient emergency buffers exist. Figure 1 shows the steady price increase of oil ahead of the start of the war and the subsequent spikes and drops. Naturally, prices have been extremely volatile. In spite of the steep disruption of oil flows, oil prices have soared “only moderately”, due to a combination of increasing oil supply from other sources and a reassuring rhetoric from the US that the war will be over soon; thus, only affecting the global economy in the short-term. Figure 1: WTI Crude Oil Prices Since January 2026, Source: Investing.com, March 2026 Equity markets have also reacted unevenly to the escalation, reflecting differing regional exposure to energy supply risks. As shown in Figure 2, US equities have shown comparatively limited downside, falling by roughly 2% since the start of the war, despite having already struggled earlier in 2026. This relative resilience partly reflects the United States’ greater energy independence, as domestic oil production reduces its vulnerability to disruptions in Middle Eastern supply. By contrast, European equities, which had begun the year on stronger footing, have declined by nearly 6% since the conflict began, reflecting the region’s higher dependence on imported energy. Asian markets experienced the sharpest initial reaction, with Japan temporarily falling more than 10% and still trading around 7% lower, while Chinese equities have shown a more muted response, currently down only around 1%. Figure 2: Impact of the War in Iran on Global Equities, Source: Investing.com, March 2026 Periods of geopolitical instability such as the current conflict tend to highlight the diversification role of hedge funds within institutional portfolios. Their ability to dynamically adjust exposures and capture relative value across asset classes allows them to benefit from volatility and market dislocations, rather than being fully exposed to broad equity drawdowns. Strategies such as global macro, CTAs, and multi-strategy funds are particularly well positioned to navigate sharp moves in commodities, currencies, and rates that typically accompany geopolitical shocks. In contrast to public markets, private credit has so far shown limited immediate reaction to the recent geopolitical escalation. The asset class is generally less sensitive to short-term market volatility, as valuations are driven primarily by borrower fundamentals and contractual cash flows rather than daily market pricing. As a result, the direct impact of the conflict on private credit portfolios has remained relatively muted to date. Recent developments suggest growing stress signals in parts of the private credit market, particularly among highly leveraged borrowers facing elevated financing costs. An increasing number of companies have resorted to loan restructurings, payment-in-kind (PIK) interest, and liability management exercises to manage debt burdens. As a result, some market participants argue that headline default rates may understate the underlying level of credit stress, as troubled loans are often amended rather than formally defaulted. These dynamics point to a more challenging phase of the credit cycle, particularly for weaker borrowers that relied on aggressive capital structures during the period of abundant liquidity. At the same time, investors have become increasingly concerned about liquidity and valuation transparency within parts of the private credit ecosystem, particularly among large asset managers with significant retail exposure. Recent market developments have highlighted these risks, with Blue Owl Capital reportedly halting redemptions in one of its private credit vehicles, raising questions about liquidity management in semi-liquid structures. The company’s publicly traded shares have also come under pressure, declining by roughly 43% so far in 2026, while several other listed private credit managers have experienced similarly sharp drawdowns during the year. These developments have intensified the debate around whether the rapid expansion of the asset class in recent years may have masked underlying credit risks and valuation pressures. Despite these concerns, the structural growth drivers of private credit remain firmly intact. 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