Geopolitical Update: Why the Middle East conflict now matters more for markets – 15 September 2026

Key summary

The central issue: The conflict is threatening two critical routes used to move oil and goods out of the Middle East. The Strait of Hormuz is the main sea exit from the Gulf. Saudi Arabia’s alternative route carries oil by pipeline to the Red Sea, but that pipeline has been disrupted. Ships using the Red Sea must then pass through the Bab el-Mandeb Strait near Yemen, where Houthi attacks have increased security concerns.

This explains the sharp rise in oil. Brent crude is trading at roughly US$107 per barrel, compared with about US$91 at the end of August. That is an 18% increase in the past 2 weeks. The increase is thus not a sign of stronger world demand. It is the price markets are placing on the possibility that oil could be delayed, rerouted or temporarily unavailable.

The investment consequences extend well beyond energy shares. Expensive oil raises transport and production costs; places pressure on household budgets and can keep inflation higher. Central banks may then need to hold interest rates higher, or raise them, even while economic activity is slowing.

What has happened since the end of August?

At the end of August, attention was focused mainly on renewed fighting between the United States and Iran and on the restricted movement of commercial ships through the Strait of Hormuz. Since then, the risk has spread westwards towards Saudi Arabia, Yemen and the Red Sea.

Houthi forces in Yemen have renewed missile and drone attacks on Saudi targets following Saudi military action in Yemen. Attacks have also disrupted Saudi Arabia’s East-West pipeline. This pipeline moves oil from fields in the east of the country to the port of Yanbu on the Red Sea. Its purpose is important: it allows some Saudi oil to avoid the Strait of Hormuz.

The pipeline disruption therefore matters even if no additional tanker is attacked in Hormuz. It reduces the region’s ability to use an alternative route. It also brings the Bab el-Mandeb Strait into sharper focus because ships leaving the Red Sea for Asia must pass through this narrow waterway between Yemen and the Horn of Africa.

Understanding the two straits

1. The Strait of Hormuz

The Strait of Hormuz is the narrow sea passage between Iran and Oman. Oil and liquefied natural gas from producers in the Gulf normally pass through it on the way to world markets. Historically around 20% of the world’s global oil supply travels through this strait. Commercial traffic remains severely constrained because shipowners, crews and insurers need confidence that vessels can travel safely.

2. The Bab el-Mandeb Strait

The Bab el-Mandeb is the southern entrance to the Red Sea. It connects the Red Sea and Suez route with the Gulf of Aden and the Indian Ocean. For Saudi Arabia, it is especially important when oil is sent westwards through the East-West pipeline to Yanbu. If security deteriorates around Bab el-Mandeb, vessels may avoid the Red Sea and travel around the southern tip of Africa instead.

Longer routes do not necessarily mean that oil disappears, but they increase shipping time, fuel use, insurance and financing costs. These additional costs can eventually reach businesses and consumers through higher prices.

The Yemen conflict in simple terms

Yemen’s conflict involves several parties. The Houthis control significant territory in the country and are aligned with Iran. They are opposed by Yemen’s internationally recognized authorities and have fought a Saudi-led coalition. The latest attacks should therefore not be described simply as a war between Saudi Arabia and the whole of Yemen. The relevant market concern is that the conflict is affecting Saudi infrastructure and a waterway used by international trade.

A further escalation could involve more attacks on pipelines, ports, air bases or ships. A de-escalation could follow if regional powers use diplomacy to stop attacks and allow repairs. Markets are likely to remain volatile while neither outcome is clear.

Oil, gold and the market message

Brent crude is trading near US$107.35 up from the low nineties at the start of the month. Brent traded close to US$110 on Monday before easing. Prices above US$100 tell investors that the market sees a meaningful risk to supply routes and infrastructure. The longer repairs and shipping restrictions continue, the more likely it is that the oil shock will affect economic data.

Gold is currently trading at US$4,307 per ounce. It continues to be supported by demand for assets that may protect portfolios during geopolitical stress. However, gold is also sensitive to interest rates and the US dollar. Higher bond yields increase the opportunity cost of holding an asset that pays no income, while a stronger dollar can make gold more expensive for buyers using other currencies.

How higher oil feeds into inflation

The first effect is visible at the fuel pump. Petrol, diesel and aviation fuel have become more expensive. The next effect appears in the cost of moving food, consumer goods and industrial inputs. Businesses may then pass on some of these costs to customers. If the shock lasts, workers may also seek higher wage increases and firms may become more willing to raise prices.
Central banks pay close attention to this process. They cannot produce more oil or repair a pipeline by raising interest rates.

They can, however, try to prevent a temporary oil shock from leading to a lasting rise in general inflation and inflation expectations. This creates a difficult policy choice because higher interest rates also weaken spending and investment.

Why this is difficult for markets: Higher oil can mean slower economic growth at the same time as higher inflation and higher interest rates. This combination is uncomfortable for both shares and bonds.

Indicator Indicative level Why it matters Brent crude About US$107.35/barrel Signals a material global supply- risk premium. Spot gold About US$4,307/ounce Supported by uncertainty but restrained by higher yields. Fed hike probability About 90% Markets expect a 25 basis-point increase on 16 September. SARB repo rate 7.00% before the meeting The oil shock raises the risk of a hike or hawkish hold

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The Federal Reserve meeting tomorrow

The Federal Reserve’s two-day meeting ends today, Wednesday, 16 September. Money markets indicated roughly a 90% probability of a 25-basis point interest rate increase on Monday (two days ago), compared with about 60% a week earlier. The rapid change reflects concern that higher energy costs and firm underlying inflation could keep US inflation above the Fed’s comfort level.

A rate increase accompanied by firm guidance would probably support the US dollar and keep bond yields elevated. That could put pressure on expensive growth orientated equities, emerging-market currencies and gold in the short term. A more balanced message could reassure markets that the Fed is responding to inflation without committing to a long series of increases.

Investors should listen not only to the rate decision, but also to the Fed’s explanation. The crucial question is whether officials see the oil shock as temporary or as a threat to broader expectations of inflation.

What it means for the South African Reserve Bank

The South African Reserve Bank is expected to announce its next interest-rate decision on 23 September. The repo rate was held at 7.00% in July after a split vote, with two members favoring a 25 basis-point increase. The rise in the oil price has made next week’s decision more difficult.

South Africa imports most of its crude oil requirements. A high dollar oil price therefore raises the cost of imported fuel. If the rand also weakens (it has fallen from R16 to R16.30 to 1USD the past week) because the Fed raises rates or global investors become more cautious, the domestic fuel cost increases from both directions. Higher transport costs can then affect food prices and other goods.

Weak domestic growth argues against unnecessary tightening, but the SARB also needs to protect inflation expectations and the credibility of its 3% target. The oil shock does not make a rate increase certain. It does increase the possibility of a 25 basis-point rise or a hawkish decision to hold rates while warning that policy may need to remain tight.

What does this mean for markets

The key distinction is between companies that benefit from higher commodity prices and those that must absorb higher energy and transport costs. Energy producers and selected resource shares may receive support. Airlines, transport businesses, manufacturers and consumer companies may face pressure unless they can pass costs on to customers.

For bonds and fixed income investments the main risk is that inflation stays high and central banks keep interest rates restrictive. Long-dated bonds are generally more sensitive to changes in inflation and yields.

Gold still has a role as portfolio insurance, but it should not be treated as a guaranteed short-term winner. A Fed hike can strengthen the dollar and lift real yields even while geopolitical demand for gold remains strong.

Mixed asset portfolios are nicely balanced between local and offshore assets. Local bonds provide attractive income, but the rand and yields remain sensitive to oil, US rates and global risk appetite. Offshore exposure can diversify domestic political, currency and inflation risks, although it brings its own market and currency volatility.

What to watch next

• The time needed to repair Saudi Arabia’s East-West pipeline and whether oil can continue to move through Yanbu.
• Further Houthi attacks on Saudi infrastructure or shipping near the Bab el-Mandeb Strait.
• Commercial vessel traffic through the Strait of Hormuz and changes in shipping insurance costs.
• The Federal Reserve’s interest-rate decision, projections and comments on Wednesday, 16 September.
• The rand, local fuel-price pressure and the SARB’s message on Wednesday, 23 September.

Conclusion

The Middle East conflict now poses a broader economic risk than it did at the end of August. The concern is no longer limited to the Strait of Hormuz. Saudi Arabia’s alternative pipeline has been disrupted, while renewed Houthi action makes the Red Sea and Bab el-Mandeb route less secure. This combination has pushed oil above US$100 and increased the risk that the shock will be felt through inflation, interest rates and slower growth.

The outlook can still improve if attacks subside, repairs proceed and shipping confidence returns. It can worsen if infrastructure damage spreads or both maritime routes remain unreliable. Because either path is possible, investors should focus on portfolio resilience rather than a single forecast. Diversification, liquidity, quality and disciplined rebalancing remain the most dependable response.

The Nedgroup Investments Multi-Manager Team

The contents of this article are sourced froThe Nedgroup Investments Multi-Manager Team.There is no warranty of any kind, expressed or implied, regarding the information or any aspect of this article. We shall not be responsible for and disclaim liability for any loss, damage (whether direct or consequential) or expense of any nature whatsoever, which may be suffered as a result of, or attributable to, the use or reliance upon the information provided in this newsletter