De-escalation and resilience support financial markets

The second quarter of 2026 was characterised by a notable improvement in the geopolitical backdrop, specifically the signing of a Memorandum of Understanding (MoU) between the United States and Iran. This agreement represents a significant de-escalation of what had previously been one of the most acute geopolitical risks facing global markets. While many challenging issues still need to be negotiated during the agreed two-month ceasefire period, and likely beyond - the immediate cessation of military hostilities has led investor sentiment to improve considerably.

A key transmission channel of this improved outlook has been through energy markets. Uncertainty surrounding the Strait of Hormuz had previously driven a meaningful risk premium into oil, gas, fertilizer and shipping costs. Encouragingly, early indications suggest that shipping transits through the Strait are improving and set to normalise, although the precise timing of a full return to preconflict levels remains uncertain, given that both nations have accused each other of violating their ceasefire.