This weekend, U.S. and Israeli air attacks on Iran, killing of the 86-year-old Supreme Leader Ayatollah Ali Khamenei, and various regional responses have predictably unsettled financial markets worldwide going into Monday. Oil prices are spiking up about 8%, equities in most markets are down 1-2% as this is written and bonds are under pressure, fearing higher rates on oil-push inflation.
Iran is not only a major oil producer and reserve holder but also a geographic gatekeeper of the Persian Gulf’s Strait of Hormuz, through which about 20 million barrels a day, or 20% of the world’s oil production, pass by tanker. Gulf nations such as Qatar also are a major natural gas supplier, with notable dependence in Europe and other buyers who have shifted away from Russia since the Ukraine invasion four years ago.
The military action and killing of Khamenei and many in his inner circle open up a wide range of possibilities, including some very positive ones if the terror-sponsoring regime is replaced by moderate leadership. This could unlock a well-educated population (notably more modern and worldly than its leadership since 1979) of some 90 million, and transform the region into one more cooperative with the Gulf states, and more open to the west as well as Israel.
But the path is uncertain, to say the very least. Many countries could be drawn in, and American troops and a ground presence may be needed to effectively change the regime. Wild cards will abound. For example, Iran’s initial response has included hits on Dubai hotels and other commercial assets and cities thought to be relatively safe, leading to a freeze on local air travel that might have surprised President Trump and his team.>
Thayer portfolios will be affected by a sell-off, most directly in equities. After a strong three calendar years, the first two months of 2026 have been solid, with the Thayer recommended equity mix up about 4.4% while the S&P has gained 0.6%. The former number has been aided by having roughly a third of its exposure outside of the U.S., where returns have been stronger.
At present, we do not recommend any quick trades, instead maintaining a well-diversified mix and the longer view. This could always be subject to change, which of course we would communicate. We are still a bit underweight in China, which is more reliant on Iranian oil than other leading economies. Our bond mix is moderately defensive with a shorter-than-market maturity mix, which seems appropriate if we face sustained upward pressure on inflation (and interest rates) thanks to higher oil.
We will be back to you as events dictate.
David Beckwith, CIO
