The Gulf Conflict, Gold and the Fracturing of the Global Order

The situation in the Gulf remains extremely fluid. While the US administration has begun to shift its language toward "we won already", it is difficult to imagine the Iranian regime capitulating this early. A drawn-out war of attrition is to their advantage.

But step back from the daily headlines and a broader pattern is emerging. All events continue to point toward a megatrend of global fracturing, both geopolitically and geoeconomically, and what increasingly looks like a resurgence of modern mercantilism.

The security umbrella is cracking

For decades, the implicit arrangement in the Middle East has been straightforward. The Gulf states rely on the US for military security. In return, oil is priced in US dollars and the US maintains a military presence on their territory.

That arrangement is showing cracks. The US has struggled to provide effective security against missile and drone attacks on neighbouring states and has been unable to control the Strait of Hormuz.

Iran is exploiting this. In a remarkable development, it has offered to let tanker traffic resume through the Strait, but only if oil is transacted in Chinese renminbi. The regime has also indicated it would allow ships through for all nations except the US and Israel.

The gold puzzle

In an environment like this, one would imagine gold should be rising. The opposite has happened and gold is down from pre-strike levels.

This is likely a combination of short-term factors: a knee-jerk rally in the US dollar (where nothing fundamentally would suggest the dollar should be structurally rallying right now), potential for rate hikes to offset inflation and a reversal of popular positioning. Long gold, short dollar, long oil was a crowded trade. Moments of market stress typically see profitable positions being unwound first.

This means very little to our long-term thesis. While short-term flows can drive more volatility, the structural case for gold is only strengthened by the events of the past two weeks.

Inflation impact is regional and nuanced

Markets are selling off on fears of inflation, but we think the regional effects will be more nuanced than the headlines suggest.

The US is uniquely positioned as a net exporter of both crude and natural gas, making it a relative beneficiary. But voters will still feel the impact. Retail gasoline has already risen 70 cents from US$3 per gallon pre-strike. There are rumours of the US Treasury taking short positions in the paper crude market to moderate the spike.

US headline inflation stood at 2.4% in February, before the conflict began. The key question for the impact on inflation is the duration of the shock.

The global economy has handled US$100 oil before. What makes this episode different is the pace of the rally and the disruption to logistical chains. A gradual rise to these levels would have been far more manageable. It is the speed of the spike, combined with the physical blockage of trade routes, that is causing the stress.

We are now in week three of what the US administration initially described as a four-to-six-week operation, though that timeline continues to shift. If this lasts weeks rather than months, the inflationary impact could prove more manageable.

But if the price of oil continues to hover around US$100 a barrel over the next 12 months, there’s a consensus expecting US headline inflation to rise to 3-3.5% (reflecting US$5 gasoline) and a slowdown in the global economy. If there’s a sustained rise to US$150, expectations are for 4.5-5.5% inflation (US$6+ gasoline), at which point recession fears become very real.

Food inflation

For net importers in Asia and Europe, the situation is far more acute. More than 80% of the crude and LNG flowing out of the Strait goes to Asia.

One area that deserves close attention is agriculture and food. Energy costs are highly correlated with food prices across the entire supply chain, from fertiliser production to processing and transport. In many Asian countries, energy and food make up a much larger portion of CPI baskets than in the West. The knock-on effects here could be significant if the conflict is drawn out.

It is also worth watching whether Iran will start allowing some tanker volumes out selectively to further isolate the US and Israel.

Physical damage is still limited

Given developments, one can argue that oil markets have been remarkably orderly (even if it may not have felt like it last week). This partly reflects traders’ view that this as an infrastructure disruption, rather than actual damage to production and capacity.

Figure 1. Current major Gulf infrastructure status

Source: Man Group compilation based on news sources as of 16 March 2026.

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Iranian counterstrikes have mainly targeted military installations, communications and diplomatic facilities. A significant portion of the oil currently offline is simply spigots being turned off due to storage hitting capacity and a lack of takeaway routes out of the Gulf.

The weekend strike on Kharg Island targeted military installations, not oil facilities. Thus far, physical damage to energy infrastructure has been limited. Obviously, this calculus can change quickly given the unpredictability of the situation.

Parting thoughts

The conflict is changing too rapidly for analysis to keep pace. But the structural shifts underneath the daily volatility will likely outlast whatever ceasefire will eventually come.

All data sourced from Bloomberg unless otherwise stated.

Author: Al Chu, a Natural Resources Portfolio Manager at Man Group.