Framing today’s uncertainty: an economic lens on a fast‑moving geopolitical moment
By Craig Phillips, Snr Financial Adviser Phillips Wealth Partners
Before we begin, a gentle preface. Global political change can be volatile and fast moving. The thoughts below are not predictions or certainties. They are an interesting read and a framework for thinking, rather than a forecast. No one can predict the future, and the aim here is simply to provide context that may help you make considered decisions over time.
The commentary that follows draws on a macroeconomic view of the current environment. It is shared to give you a sense of the backdrop in which households, businesses and investors are operating. It is not sector specific advice, and it is not a call to action. If you would like help translating these themes into your own plan, we can work through that together.
Geopolitical developments can move quickly through markets and into the real economy. They influence confidence, costs and investment conditions. Right now, escalation in the Middle East has delivered a fresh global shock. Energy markets are the most immediate transmission channel, but they are not the only one. The scale of the impact will depend on how long the conflict lasts and how far it spreads. Duration and breadth matter for both prices and confidence, and therefore for growth.
Oil markets are already under pressure. Disruption to tanker traffic through the Strait of Hormuz has lifted prices to their highest levels since mid‑2023, and there is a clear risk that oil moves above US$100 a barrel if the disruptions persist or widen. Strategic petroleum reserves in large economies can cushion some near‑term pressure, but they are a bridge, not a destination. If physical flows remain constrained, the price impulse is likely to be sustained, keeping volatility elevated and market sensitivity high to incoming headlines.
Beyond energy, there is a secondary supply chain risk that is easy to overlook but important to acknowledge: fertiliser. A significant share of global trade in nitrogen‑based products such as urea and ammonia transits the same chokepoint. Prolonged disruption would raise agricultural input costs with limited room for substitution in the short term. The economic effects would show up with a lag as higher food prices and tighter farm margins, reinforcing inflation pressures and adding to downside risks for growth.
Industry impacts are likely to be uneven. Energy producers and defence‑related businesses may receive support from higher demand and pricing. Energy‑intensive sectors such as steel, aluminium and chemicals, together with transport and logistics, face rising costs. Aviation is already feeling the strain as restricted airspace and operational pauses ripple through flight schedules. That is likely to weigh on international tourism for a period and could, at the margin, encourage more domestic travel as households re‑shape holiday plans.
For households, the risk is that higher fuel and utility costs erode real incomes and reduce discretionary spending if the conflict persists and extends. This is one of the channels through which geopolitical shocks can slow consumption‑led growth. It is also why policy choices become more complex when inflation pressures come from supply constraints rather than excess demand.
Financial markets typically adopt a risk‑off tone when uncertainty rises. Safe‑haven assets such as gold, high‑quality government bonds and currencies like the Swiss franc tend to find support. Equity markets had already been wrestling with questions about whether the scale of artificial intelligence‑related capital spending is being matched by sustainable returns. The addition of a geopolitical shock raises the hurdle for higher‑valuation segments and can increase dispersion across sectors. In Australia, energy and materials have been among the stronger performers over the past year, a trend that may persist if commodity prices remain firm.
Closer to home, the Reserve Bank of Australia faces a more complicated near‑term outlook. If higher energy prices and renewed supply frictions persist, headline inflation could remain elevated for longer, especially if inflation expectations drift higher. At the same time, rising fuel costs and uncertainty can dampen household spending. The RBA has also signalled greater attention to overall financial conditions, not just the cash rate. If risk premia widen, credit spreads increase and exchange rates become more volatile, financial conditions can tighten even without further rate increases, which would weigh on activity.
Against this backdrop, I believe a few principles are worth keeping front of mind. First, diversification across and within asset classes, and across geographies, remains a cornerstone. Concentrated exposures are more vulnerable when shocks are driven by single points of failure such as key transport corridors or regional flashpoints. Second, a long‑term orientation helps. Periods of volatility can create opportunities to add high‑quality assets at more attractive valuations, provided the risk is consistent with your goals and time horizon. Third, liquidity and resilience matter. Ensuring that portfolios and cash flow plans can absorb bumps reduces the likelihood of forced decisions at the wrong time.
Most importantly, this is a moment to separate process from prediction. No one can know precisely how long this conflict will last or how far it will spread. What we can do is maintain a disciplined process: review goals, test assumptions, stress‑test plans, and make measured adjustments where warranted rather than wholesale shifts driven by headlines. For business owners, that may mean revisiting input cost sensitivities, supply chain alternatives and pricing strategies. For households and retirees, it may mean re‑checking spending cushions, sequencing risk, and the balance between growth and defensive exposures.