Despite heightened geopolitical tensions in the Middle East this month, financial markets have shown remarkable resilience. On June 13, Israel launched a major airstrike campaign against Iranian nuclear sites, marking the first overt attack on Iran’s nuclear infrastructure, striking Natanz and Fordow enrichment facilities, as well as centrifuge production centres.

Then, on June 22, the US entered the conflict deploying stealth B2 bombers in a surprise overnight strike on Iran’s underground nuclear sites using bunker-busting bombs, showcasing precision air power and strategic deterrence. However, since the attacks began on June 13, both the MSCI World Stock index and the S&P 500 are essentially flat through June 23.

Typically, escalations in the region, especially those involving key players such as Israel, Iran, or Saudi Arabia can send shock waves through global equities and commodity markets. However, the recent volatility has been relatively contained. This resilience is largely attributed to a combination of investor confidence in global economic fundamentals, the strategic responses of central banks, and a degree of geopolitical fatigue that has muted risk-off reactions compared with past conflicts.

One key reason for the markets’ calm has been the limited direct impact of recent Middle East tensions on global oil supply even as oil prices have risen about 15 per cent this month. While the region remains a critical hub for energy production, market participants appear to believe that the latest confrontations will not spiral into a broader regional war that could disrupt oil flows significantly. Additionally, the rise of US energy independence and increased global strategic petroleum reserves have provided a cushion, reducing the shock potential from regional disruptions

Another factor is the strength of the US economy, which continues to show robust growth and resilient consumer demand. Recent economic data, including job numbers, retail sales, and corporate earnings have painted a picture of a relatively strong economy. As long as the US economy remains on solid footing, investors seem willing to look past geopolitical noise. This is especially true in an environment where technology stocks, particularly in AI and semiconductors, continue to lead market gains and attract investor flows.

Investor psychology is another subtle but powerful element. After several years of navigating overlapping crises, from Covid-19 to inflation to war in Ukraine, market participants have developed a higher threshold for geopolitical shocks. Unless events pose a systemic risk to global supply chains or financial institutions, the bar for a sustained risk-off reaction has risen.

Finally, strong corporate balance sheets and high cash reserves have provided investors with an additional layer of reassurance. Many companies, especially in the US, are in better financial shape than they were in past periods of geopolitical uncertainty. This financial robustness, combined with active share buybacks and dividend payouts, continues to support equity valuations and reduce the incentive for mass liquidation during periods of geopolitical tension. As a result, while investors remain alert, markets have largely taken the Middle East developments in their stride, so far.

• Bryan Dooley, CFA, is the Chief Investment Officer at LOM Asset Management Ltd in Bermuda. Please contact LOM at +1 441-292-5000 or visit www.lom.com for further information. This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. Readers should consult with their brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority