Dear Valued Clients,
The past week has brought significant developments in the Middle East that warrant a clear-eyed assessment. On February 28, the United States and Israel launched an air campaign against Iran, targeting leadership, military installations, and nuclear-related facilities. Iran’s Supreme Leader was killed within 24 hours. The Strait of Hormuz — the narrow waterway through which roughly 20% of the world’s oil passes — has effectively closed. Brent crude is trading at approximately US$93 per barrel this morning, up roughly 21% month to date.
Six days in: Iran has retaliated with over 500 ballistic missiles and 2,000 drones, striking US bases in the region and Qatar’s main LNG production facility. The administration has signaled the campaign could last four to five weeks or longer. Both chambers of Congress have declined to constrain the President’s war powers. The House voted 212–219 to reject a war powers resolution — with only two Republicans breaking with the President — one day after the Senate blocked a similar resolution. Taken together, the failed votes represent an implicit congressional authorization for the campaign to continue.
A separate House resolution reaffirming Iran as the largest state sponsor of terrorism passed 372–53, with near-unanimous Republican support. The end game and objectives remain unclear — and that political reality, combined with broad congressional backing, suggests this campaign is unlikely to be short.
A Broader Context Worth Considering
Beyond the immediate military campaign, we think it is worth sharing a perspective that several independent analysts have raised — one that may help explain the timing and strategic logic of these events, whatever one’s view of them.
Whether by design or consequence, the events of recent months have significantly disrupted China’s access to discounted oil. In January, Venezuelan President Maduro was removed from power — Venezuela had been supplying China with roughly 800,000 discounted barrels per day. Now Iran, which had been providing China with approximately 1.5 million barrels per day at steep discounts, is at the centre of an active military conflict. In sixty days, the two largest sources of below-market oil to China have been disrupted.
The Strait of Hormuz closure amplifies this further. Approximately 65% of China’s seaborne crude imports transit that waterway — meaning Saudi, Kuwaiti, and Iraqi barrels are also effectively stranded. Whether one views these events as a coordinated strategy to constrain China’s energy supply or as parallel circumstances, the market impact is the same. We are not drawing conclusions — but we think the context is important for understanding what may be driving the broader geopolitical calculus here.
Our View: Not a Systemic Event — But We Are Watching Closely
As of today, we do not view this conflict as a systemic event that would change or derail our positive outlook for the economy and markets in 2026. The fundamental drivers of that outlook—resilient corporate earnings, moderating inflation, and continued consumer strength in North America—remain intact. That said, we are monitoring the situation closely for both opportunities and unintended risks.
The two risks we are watching closely:
- A prolonged Strait of Hormuz closure. Roughly 20% of global oil supply and 65% of China’s seaborne crude imports transit this waterway. Brent crude has already reached US$93 per barrel — consistent with JPMorgan’s estimate for a sustained closure scenario — and prices could move higher if the disruption extends further. This level of sustained energy inflation would pressure central banks to delay rate cuts and weigh on consumer spending.
- Escalation involving China, Russia or both. Beijing has thus far responded with diplomacy, but China is Iran’s largest oil customer and has deep economic interests at stake. Any material shift in China’s posture — or increased Russian support for Iran — would represent a meaningful escalation and change our assessment.
Market Volatility is Expected, But it Creates Opportunity
The unclear end game is sufficient to generate elevated volatility in global markets over the near term — in equities, fixed income, and commodities. This is not unusual, and it is not a reason to act impulsively.
History is instructive here: every major oil disruption in modern times — from the 1973 Arab embargo to the 2022 Russia-Ukraine war — produced a period of elevated volatility followed by normalization. Markets recovered.
Patient, disciplined investors were rewarded. Geopolitical shocks of this nature, while impossible to predict with precision, are a recurring feature of long-term investing — and our approach is to remain disciplined when they occur. We are prepared to deploy capital into high-quality positions at attractive entry points as this situation evolves.
Staying Diversified and Focused on the Long Term
Your portfolio is constructed with diversification across asset classes and geographies as a core principle. That structure is designed to help manage risk through periods of uncertainty — though we want to be clear that no portfolio is immune to short-term market volatility, and declines in the value of your investments are possible, including during geopolitical events like this one.
What diversification does is reduce concentration risk and improve resilience over time — not eliminate volatility in the short term. We saw a meaningful example of this in 2025, when Liberation Day — the sweeping tariff announcements of April 2025 — created a sharp market drawdown. Broadly diversified portfolios experienced less severe declines than concentrated ones, and participated in the subsequent recovery. That is the principle at work, and it remains relevant today.
We continue to invest with a long-term horizon. Short-term volatility is an expected and unavoidable feature of markets. Our focus remains on making sound, disciplined decisions on your behalf through periods of uncertainty — not reacting to headlines.
Stay calm, stay diversified. Do not make dramatic portfolio changes based on week-to-week headlines. The investors who do best in periods like this are the ones who understood their positions going in — and did not let fear or excitement push them into decisions they will regret.
Please do not hesitate to reach out if you would like to talk through what any of this means for your specific situation. Our door is always open.
Sincerely,
Pedro Ribeiro, CIM, FCSI
Founder, CEO and Portfolio Manager
Marnoa Private Wealth Counsel
[email protected]
519-707-0049
www.marnoa.ca
