Your March 2026 market update: the financial fallout from the Middle East conflict

This is part of our monthly series. Catch up on last month’s summary here: Your February 2026 market update: conflict in the Middle East, the US market lags, and positive signs elsewhere

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It’s probably no surprise where we’re starting with our market update this month.

The US and Israel carried out joint strikes on Iran on 28 February. As a result, March was punctuated with daily updates and headlines about what might happen next. 

Having lasted for the entire month, the conflict is continuing into April. US Secretary of State, Marco Rubio, said on 27 March that he expected operations in Iran to complete “in the next couple of weeks”. 

Even so, there are consequences for the global economy, and markets have already taken notice.

Find out how markets responded in March.

The headlines: global markets dip in the face of geopolitical uncertainty

When the conflict began, the market reaction was fairly muted. Despite small drops, values held steady. But markets reacted as it became clearer that this period of uncertainty was set to last. That’s led to the performance we’ve seen throughout March.

Amid so much uncertainty, markets were unsurprisingly down, especially in Asia. Across some of the world’s biggest market indices, we saw losses of:

• 6.0% on the FTSE 350 in the UK;
• 7.8% on the MSCI Europe Ex-UK;
• 5.1% on the US S&P 500;
• 12.0% on Japan’s Nikkei 225; and
• 12.5% on the MSCI Asia Ex-Japan. 

Markets did briefly calm on 10 March when US President Donald Trump said that the conflict was “very complete, pretty much”. He also said that the operation was “very far ahead of schedule”.

But as the conflict continued, so did drops in value.

In our January market update, we noted that the bull market (a period of rising prices) that we’d experienced since 2022 wouldn’t last forever. Key markets hit a series of record highs throughout that period. But it was always likely that we’d eventually see falls in value, even if only temporarily.

The conflict has probably led to bigger dips than we might’ve expected otherwise. Even so, it’s another reminder that this is what markets do - rise and fall over time.

Energy supply disruption has fed through to the market

The biggest factor in these dips has been uncertainty over energy supply.

Markets dislike uncertainty at the best of times, and the conflict in the Middle East has created lots of it. In particular, we’ve seen disruption to oil and gas production and supply.

Iran retaliated to the US and Israel’s attacks by carrying out strikes against neighbouring countries in the Middle East. Many of these nations are important oil and gas exporters. This damaged key production plants.

Iran also struck ships in the nearby Strait of Hormuz, through which 20% of the world’s oil and natural gas travels. This has all but halted movement through this vital waterway.

As a result, oil prices have since risen sharply as supply has restricted. The cost per barrel climbed to almost $120 at one stage, still sitting at around $118 at the end of March.

Most economies rely on oil and gas, at least in part. Those that don’t produce much or any of their own are very exposed to price rises. So, disruption to the energy supply has far-reaching consequences for economies across the world.

Consumers’ spending power has already been restricted by higher prices at the petrol pump. Petrol climbed above 150p a litre in the UK for the first time in two years, and gasoline to more than $4 per gallon in the US. 

More broadly, UK homes powered by heating oil have seen a dramatic increase in costs, too. We’re yet to see the impact of energy to homes on the grid thanks to the energy price cap. But it’s likely that we’ll see an increase at the next review in July.

Meanwhile, businesses have increased prices, owing to the rising cost of producing goods and services. 

With all this going on, markets have priced in lower consumer spending and economic growth.

Major economies hold their interest rates

We’ve now seen policymakers directly respond to the conflict and supply disruption. 

Since war broke out, many of the world’s most important and influential central banks have held their base rates, which impact everything from savings accounts to mortgages. This includes:

• Bank of England (BoE) in the UK, holding rates at 3.75%;
• Federal Reserve in the US, holding rates at 3.5% to 3.75%; and the
• European Central Bank (ECB), holding rates at 2%. 

Markets had initially priced in an expectation of rate cuts in 2026. But these central banks held rates over concerns that rising energy prices would keep inflation higher for longer. The markets are now pricing in interest rate hikes this year, ahead of expected rising inflation.

Inflation and limited growth raise fears of stagflation in the UK

UK inflation in the 12 months to February 2026 stayed steady at 3%, as compared to 2.4% in the US, and 1.9% in the Euro area. 

But these figures don’t include the impact of the conflict and oil prices, which we’ll see reflected in next month’s data. 

For the UK in particular, this has raised the risk of stagflation - that’s a period of high inflation, low growth, and rising unemployment. 

We’ve already seen the UK’s growth forecast cut from 1.2% to 0.7%. With inflation likely to rise over the coming weeks, stagflation becomes a real possibility.

Government bonds fall in value

The other important outcome of holding rates steady has been how the bond market responded.

We saw a sharp global bond sell-off in March, particularly in UK government bonds (otherwise known as ‘gilts’).

While it depends on what you’re invested in, these movements can affect pensions. 

Many providers invest in bonds, especially from reliable borrowers like the UK government. This helps to de-risk from stocks and shares, which tend to rise and fall in value more than bonds. It also offers regular income, which is particularly useful for investors approaching retirement.

For example, some of PensionBee’s plans have a proportion invested in bonds, including the 4Plus Plan, the default plan for over 50s.

The importance of staying invested 

As the Middle East conflict enters its second month, we’re likely to see the fallout, including market volatility, carry over into April. 

Higher energy prices are likely to hang over economies for a little while yet, pushing prices up and potentially damaging growth. Investors will be keeping a close eye on how this develops, with markets pricing in any changes.

You might well see this reflected in your pension balance. This can be disconcerting, especially if you’re close to, or already, drawing your savings.

But, as we explained at the start of the Middle East conflict, markets have historically grown over the longer term, despite the uncertainty of geopolitical events.

As described above, major market indices are down this month. But consider this table of their performance over the past five years:

Despite the drops that we’ve seen in this last month, these markets are still up over the past five years, most of them substantially so. The exception here is the MSCI Asia Ex-Japan, which suffered a tumultuous period due to poor performance of Chinese equities. Yet, it still ended the period with a gain.

This five-year time frame includes Russia’s invasion of Ukraine in 2022. This also disrupted the energy supply and saw inflation spike above 11% in the UK.

Past performance isn’t an indicator of future performance, and nothing is guaranteed. Even so, this shows how markets can continue growing over time.

It could be worth keeping this in mind over the next few weeks as a reminder of the potential power of staying invested.

If you do, you could be better positioned to benefit if and when markets recover. 

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.