Energy supply might be the one really losing this war.

‍ What is the market strategy in the face of the war in Iran, if any? The latest news is of a ceasefire, but only a few weeks ago, Iran was facing — and is still facing — the closure of the Strait of Hormuz, dominating the market horizon, bank decisions, and exchange rate volatility. The financial markets of the United Arab Emirates were among the hardest hit by the fallout from the war between the United States, Israel and Iran, losing around $120 billion in market capitalization. ‍ But they are not the only ones concerned. ‍

Exchanges have begun to incorporate the possibility of a long-lasting and chaotic war scenario, which would lead to lasting damage to energy infrastructure, a tightening of supply, and a drag on the global economy throughout the remaining quarters of 2026. ‍ Energy supply could be the real big loser in this war.

How has that happened so far?

Week 1 ‍

The United States and Israel carried out strikes in Iran over the weekend of February 27 to March 1, resulting in the death of Iran's Supreme Leader and the de facto closure of the Strait of Hormuz. ‍ The euro fell to around 1.1750 on Monday, March 2, approaching its lowest level in several weeks, while the dollar strengthened, driven by the demand for safe haven assets following the brutal and rapid escalation of the conflict in the Middle East. The single currency was also put under pressure by soaring energy prices, with Europe scrambling to secure significant supplies of natural gas at the same time as prices soared.

At the same time, data released on Friday 27th showed an inflation rate in Germany that was lower than expected at that date, while price growth accelerated in France and Spain. ‍ Money markets only estimated the probability of a cut in ECB rates by December at around 30%. On Thursday, February 26, the President of the ECB, Christine Lagarde, said that headline inflation should converge towards the 2% target in the medium term, with food inflation — crucial for consumer perception — expected to remain slightly above 2% later this year.

Week 2 ‍

The conflict, entering its second week, showed no signs of abating after US President Donald Trump demanded the unconditional surrender of Tehran. Rising oil and gas prices have also fuelled concerns, despite Trump's promise to protect tankers in the strategic strait. As a result, at the beginning of this same week, the euro fell to around 1.1530, extending its losses from the previous seven days and reaching its lowest level in more than three months as investors sought refuge in the dollar. The price of a barrel of Brent jumped 15%, exceeding $105, after an initial jump of 29% caused by production cuts by major producers in the Middle East following the disruptions. This initial increase represented the largest daily increase since April 2020 and the highest price level since June 2022. The

Kuwait has begun to reduce production at its oil fields and refineries, while the United Arab Emirates has clearly outlined its approach to managing offshore production in order to meet storage needs. Onshore operations continued normally. In Iraq, production at its three main oil fields in the south fell by 70%, from 4.3 million barrels per day before the conflict to 1.3 million barrels per day, according to industrial sources.

Week 3 ‍

The major concern on the markets, as the area is historically strategic for the transport of much of the world's oil, has led to rising crude prices and increasing uncertainty in financial markets. ‍ On the commodity front, inflation figures in the United States showed price pressures that remained relatively strong.

The PCE index, monitored closely by the Federal Reserve, suggested that inflation was indeed going to remain high. This supported the dollar again by attracting capital to the United States.

At the same time, during this third week of exhausting conflict (for oil), some figures pointed to a slight slowdown in the American economy, such as lower GDP growth.

In Europe, the heavy dependence on energy imports and the rise in oil prices have weighed on the economy, limiting support for the euro despite expectations of a rise in rates by the European Central Bank.

Week 4

During the fourth week of the conflict, discussions between the United States and Iran led in particular to the extension of the deadline set by President Donald Trump for reaching an agreement by ten days, until 6 April. While German Foreign Minister Johann Wadephul confirmed indirect contacts and upcoming direct discussions in Pakistan, the mixed market reaction reflected skepticism that a breakthrough was imminent, with President Trump seen as looking to buy time to strengthen the military presence in Iran. Meanwhile, inflation in Spain jumped to 3.3%, its highest level since June 2024, although this figure was lower than expected (3.9%). The change in expectations about ECB policy was what hit the most: investors expected at least two interest rate hikes this year, with a high probability of a third.

Energy at stake

A tightening of central bank policies is inevitable as oil-driven inflation reaches unbearable heights.

The war in Iran is now in its seventh week, and while well-filled inventories largely absorb the supply shock, this buffer could run out fairly quickly.Meanwhile, asset prices are causing confusion among investors. Prior to the events of last week, Swiss stocks did not act as safe haven investments. Gold and other precious metals were selling massively, and even long-term US government bonds were lagging behind. The US dollar has generally fulfilled its role in times of crisis, but less so against emerging market currencies. At the height of a crisis, investors sell everything they can.

Why implement a hedging strategy for raw materials? ‍

The current situation offers the opportunity to develop a real understanding and control of volatility. Negotiating the ceasefire and putting the conflict on hold have had a positive effect on the markets and seem to have stabilized the gold price slightly. Diplomatic signals may offer temporary relief, but the underlying costs are here to stay. ‍

The main objective of any financial hedging strategy is to protect your commercial margins and to stabilize your production costs. As the “raw material” component generally represents between 50% and 60% of the final retail price, businesses' exposure to market fluctuations is considerable. ‍ First, most businesses manage their operations in liters, but the international market quotes prices in USD per metric ton.

A professional coverage strategy bridges this gap by converting these global market movements into a fixed cost per liter that corresponds to the company's real consumption. Even in conditions of peace and prosperity, when we observe the rise in the average cost of the commodity component in recent years, the need for coverage becomes obvious.

Between 2020 and 2022, the market price for the fuel component changed radically.

In 2020, the average cost per liter for the raw material component was around 1.65 units.

By 2022, this cost had increased to 2.76 units.

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For a company consuming 6 million liters of fuel per year, this price movement represents a massive change in financial needs. In 2020, the annual cost for this volume was around 9.8 million units, while in 2022 it increased to over 16.5 million units. The current war, unsurprisingly, worsens this picture.

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If a company's production costs can vary by up to 70% in just two years depending on market movements, then what is the role of coverage?

Without coverage, the company budget is at the mercy of global events.

Setting costs using international benchmarks can turn an unpredictable variable into a manageable expense.

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