Introduction
At the end of February, the FTSE 100 was edging towards 11,000 against a backdrop of rising geopolitical tensions as news of military strikes on Iran emerged.
Further developments through the end of March brought considerable additional volatility to global markets.
Markets reacted sharply to developing news, with global indices moving on the back of official statements and policy announcements. In this environment, media commentary became frenzied and often unreliable, with interest rate expectations shifting rapidly. The defining tension for central banks — from the Bank of England to the Federal Reserve to the ECB — was the same: how to respond to an energy-driven inflation surge without stifling already-fragile growth. All three central banks held rates steady in March, but the trajectory for rate cuts that had seemed clear just weeks earlier now looks far more uncertain. A ‘hold and see’ approach is their current position.
As we have seen before, the situation could change again very quickly.
Many of the topics discussed under one region equally apply to others. The impact on nitrogen fertiliser is one such issue, with longer-term implications for crop yields and food prices. As we approach the one-year anniversary of the sweeping US tariff measures introduced last April, we are reminded that events with global implications often reward patience and perseverance.
United States
The effective closure of the Strait of Hormuz — through which around 20% of the world’s oil and LNG passes — sent shockwaves through energy, equity and bond markets worldwide. By mid-March, Brent crude had surged past $100 per barrel for the first time since 2022, ultimately peaking near $120 as retaliatory strikes were launched across Gulf infrastructure. It was trading at around $112 per barrel at the end of March, hovering around and occasionally below $100 per barrel on 1st April. European natural gas prices surged 70% over the course of the month.
By the final days of the month, markets stabilised somewhat after a pause in military action was announced on 23rd March to allow for renewed diplomatic talks. That announcement generated financial market controversy after a Financial Times investigation revealed that $580 million of bets on falling oil prices had been placed just 15 minutes before the statement was published. As March ended, the situation remained fluid and unresolved.
The Federal Reserve held rates steady at its March 17–18th meeting, voting 11-1 to keep the rate at 3.5%–3.75%. The decision was widely anticipated, but the meeting was dominated by questions about the economic consequences of the conflict. Chair Jerome Powell acknowledged the uncertainty clearly, describing the conflict as a potential stagflationary shock — simultaneously pushing inflation up and growth down — while cautioning that the situation had not yet reached the level that would warrant that characterisation.
The Fed’s March projections pencilled in one rate cut in 2026, down from two expected before the conflict. GDP growth was revised up slightly to 2.4% for 2026, and both headline and core Personal Consumption Expenditures inflation projections were raised to 2.7%. Powell noted that the rate forecast was conditional on economic performance, and that if sufficient progress on inflation was not evident, a cut would not follow. The upcoming late-April Fed meeting will be Chair Powell’s last, with his successor’s confirmation process adding a further layer of institutional uncertainty.
On a separate matter, the Fed faced legal pressure through a subpoena related to its headquarters renovation. A court subsequently sided with the Fed and rejected the subpoena, though an appeal has been filed.
The economic data has deteriorated alongside the geopolitical shock. US unemployment rose to 4.4% in February. Petrol prices crossed $4 per gallon nationally for the first time since late 2023, with some states seeing significantly higher prices. Goldman Sachs warned that if oil prices remain elevated through year-end, CPI inflation could reach 3%.
On trade, following a Supreme Court ruling in February, the administration invoked Section 122 of the Trade Act of 1974, which allows tariffs of up to 15% for 150 days without Congressional approval. These tariffs are set to expire on 24th July 2026 unless extended. With mid-term elections approaching and polls showing rising voter concern about the cost of living, the politics around any extension remain uncertain.
US equity markets weakened materially through March. The S&P 500 fell from 6,816 on 3rd March to around 6,477 by 27th March, a decline of approximately 5%. A brief recovery followed the 23rd March pause announcement before retreating again as Iran’s foreign minister dismissed reports of direct talks. A US-China summit that had been scheduled for 31st March to 2nd April was postponed to 14th–15th May, removing a key near-term catalyst for stability in trade relations.
Aluminium prices surged to a four-year high after strikes on Gulf producers raised fears of supply disruption. Helium supplies have also been affected, as Qatar produces approximately 30% of global supply and infrastructure at Ras Laffan was damaged, adding a further dimension to supply chain pressures in the technology sector.
United Kingdom
For the UK, the energy shock arrived at a challenging moment. The Chancellor delivered the Spring Statement on 3rd March against this turbulent backdrop, with the Office for Budget Responsibility acknowledging that the conflict could have very significant impacts on both the global and UK economies.
Consumer energy prices are set to fall in the short term due to a 7% reduction in the price cap. However, increases to Council Tax, water bills and, over time, food costs — as global energy prices rise and ripple through many sectors — are causing significant concern. Government COBRA meetings have been held to assess possible interventions, with a means-tested energy allowance in the Autumn flagged as a potential measure. The planned increase in fuel duty from September is under particular political scrutiny.
The FTSE 100 had reached its all-time closing high of 10,910.55 on 27th February. By 23rd March it had fallen to 9,894, down 7% over the month. It briefly recovered above 10,100 following the ceasefire announcement before falling back, closing the month at 10,176. Energy companies have been standout performers within the index, benefiting from higher oil prices, while banking stocks have weakened and travel and leisure names have lagged. UK consumer confidence fell to its lowest level since the end of 2022.
The Bank of England held its base rate at 3.75% at its 19th March meeting, in a unanimous 9-0 vote — the first unanimous decision since September 2021. Markets that had previously priced in rate cuts by April or May were, by late March, pricing in the possibility of hikes later in the year, as higher energy prices threatened to push CPI to between 3% and 3.5% over the next few quarters.
Diesel prices hit their highest level since December 2022 on 30th March, reaching 181.2p per litre — a 27% rise since the start of the conflict. Average petrol prices reached 152p per litre, a 14% rise over the same period. Business energy bills rose materially for both electricity and gas.
London property prices declined for a sixth consecutive month in January, and some mortgage deals were being pulled by lenders as inflation expectations shifted rapidly. Because fixed-rate mortgage pricing reflects future interest rate expectations rather than current rates, the Bank of England’s decision to hold in March is unlikely to prevent an increase in fixed mortgage rates while this level of uncertainty persists.
UK inflation stood at 3% in February — a figure that does not yet reflect the energy shock. The Bank of England now estimates CPI is likely to reach 3% to 3.5% over the next couple of quarters. The next meeting in late April will be closely watched.
Europe
Europe’s economic momentum, which had appeared genuinely encouraging at the start of 2026, has also been derailed by the energy shock. The Eurozone Composite Purchasing Managers Index had reached 51.9 in February — its best reading in some time — before the conflict changed the outlook materially.
By late March, a key business activity index indicated stagnation, with input costs rising at their fastest pace in three years. The OECD cut its eurozone growth forecast by 0.4 percentage points to 0.8% for 2026. The European Central Bank held its main refinancing rate at 2.15% at its 19th March meeting. ECB President Christine Lagarde revised headline inflation projections to 2.6% for 2026, citing the energy shock directly, and cut growth forecasts to 0.9% for 2026.
The ECB’s published projections offered three scenarios: a baseline (oil at $90/bbl in Q2 2026), an adverse scenario (oil near $120/bbl, gas near 90 euros/MWh) and a severe scenario (oil approaching $150/bbl). In the adverse scenario, Eurozone growth could be 0.3 percentage points lower than baseline in 2026, and inflation could breach 4%. Lagarde stated the bank would ‘do everything necessary’ to keep inflation under control, drawing a direct parallel to the ECB’s actions during the 2022 energy crisis.
European natural gas prices surged 70% in March. Dutch TTF, the Europe-wide natural gas price benchmark, was trading at its highest level in more than three years on ECB decision day. European gas storage entered the critical summer refill season from a depleted position following a harsh winter, and infrastructure damage at Ras Laffan Industrial City in Qatar — home to the world’s largest LNG liquefaction facility — has been offline since 2nd March. Since Qatar produces approximately 20% of global LNG, the implications extend well beyond a short-term price spike.
Germany’s harmonised inflation measure jumped to 2.8% in March from 2.0% in February, driven by energy prices rising 7.2% year-on-year. The fertiliser market has also been affected: urea prices rose more than 40% since mid-February, given that natural gas is the primary feedstock for nitrogen fertilisers, raising concerns about agricultural costs and crop yields into 2027.
France continues to face a challenging fiscal position, with its deficit relative to GDP unlikely to narrow meaningfully this year. Germany’s fiscal expansion remains a genuine medium-term positive, but its near-term benefits are being offset by the energy shock.
Far East
China opened March by holding its annual Two Sessions meetings, at which Premier Li Qiang formally set a GDP growth target of 4.5% to 5% for 2026. The 15th Five-Year Plan, covering 2026–2030, was also outlined at the meetings, setting out China’s strategic vision with an AI-driven industrial modernisation agenda at its core.
China faces particular exposure through its energy imports. Gulf countries have cut total oil production by more than 11 million barrels per day as the Strait of Hormuz has been disrupted. China holds significant strategic oil reserves providing some cushion, but sustained disruption will ultimately squeeze production costs for steel, chemicals and electronics, weakening export competitiveness at a moment of ongoing trade friction.
The postponement of the US-China summit — originally scheduled for 31st March to 2nd April in Beijing — is a meaningful setback for confidence in trade relations. It had been viewed as a key indicator of whether last year’s US-China trade truce would hold, and its deferral removes a near-term catalyst for stability. The rescheduled date of 14th–15th May is now the focus.
Japan and South Korea are acutely exposed. Japan imports most of its energy supply and relies on the Strait of Hormuz for 70% of its total oil imports. Japan announced the release of approximately 80 million barrels from its national reserves starting 18th March, as part of the IEA-coordinated global emergency release. South Korea activated a 100 trillion won (approximately $68 billion) market stabilisation programme. Japan’s Cabinet Office warned that a sustained 10% increase in crude oil prices could boost consumer inflation by up to 0.3 percentage points over about a year.
Emerging Markets
The conflict has created a sharp divergence across emerging markets. Commodity exporters have benefited from soaring energy and metals prices, while energy importers — particularly across South and Southeast Asia — face intensifying pressure on current accounts, inflation and currency stability. The IEA noted that approximately 84% of crude oil and 83% of LNG passing through the Strait of Hormuz in 2024 was bound for Asian markets, making the region’s exposure structural rather than incidental.
India faces a particularly complex position. Emergency powers were invoked to redirect LPG supplies from industrial users to households as domestic supplies tightened. Energy, fertiliser and food subsidies — already significant budget items — face mounting pressure, potentially widening the fiscal deficit. India also faces secondary tariff risks from the US of up to 25% on goods if it purchases Iranian crude outside the temporary sanctions waiver.
Across Southeast Asia, governments have responded with emergency measures. Thailand directed state agencies to work from home to reduce fuel demand. Bangladesh, reliant on imports for approximately 95% of its energy needs, imposed fuel caps, closed universities, rationed cooking gas and stationed troops at oil depots. The Philippines declared an energy emergency and announced a four-day working week for government employees. Pakistan deployed warships to escort merchant vessels in the Middle East. Nepal began rationing cooking gas.
Latin American commodity exporters have seen generally supportive conditions in 2026. Brazil and Peru continue to attract investor interest through their metals and agricultural exposure, with commodity prices elevated by the same energy shock that is hurting importers. However, the OECD cautioned that rising fertiliser costs could affect crop yields and contribute to food price inflation by 2027.
Summary
March 2026 was defined by a single event: the consequences of strikes on Iran and the effective closure of the Strait of Hormuz. Brent crude traded within a whisker of $120 per barrel before easing. European natural gas supply was reduced by around 20%. On 11th March, the IEA coordinated the largest emergency oil release in history — 400 million barrels from 32 nations — a figure analysts estimated would cover only approximately 20 days of normal Hormuz flows, and more than double the previous record release of 182.7 million barrels set following Russia’s invasion of Ukraine in 2022.
As the month ended, the 23rd March pause announcement briefly calmed markets, before Iran’s dismissal of ceasefire reports reversed that move. The fundamental question — whether the Strait of Hormuz will reopen, and when — remains unanswered. Until it does, every economic forecast is conditional.
For investors, the core principle that has served well throughout recent years of volatility has not changed. Short-term shocks — however dramatic — have consistently rewarded those who maintained a long-term perspective and resisted the urge to react. The range of outcomes from here is unusually wide, but so too are the potential opportunities for those positioned to benefit once calm returns.
And Finally…
Why do we measure crude oil by the barrel?
Since medieval times, many types of commodity were measured by the barrel for convenience. There was a lack of obvious alternative ways to measure them, and it was well suited to transportation.
Standardisation for oil barrels came in the late 19th century, when the US oil industry defined it as the equivalent of 42 ‘wine gallons’ — a term of measurement in use since the time of Richard III. By 1824, Britain had defined a water gallon as 20% larger than a wine gallon, necessitating the distinction between the ‘US gallon’ for oil and the ‘imperial gallon’ for water.
The volume of a liquid also depends on its temperature, so a barrel of oil is further defined as one filled at exactly 15.6°C and one atmosphere of pressure.
Why this has not been updated to something simpler in modern times is harder to explain, but the habit has persisted — as we can see today.
