The current geopolitical environment is no longer a matter of forward-looking risk analysis. It has arrived. On 28 February 2026, the United States and Israel launched coordinated strikes on Iran under Operation Epic Fury, killing Supreme Leader Ali Khamenei and triggering a retaliatory closure of the Strait of Hormuz. What had been a tail risk scenario is now the base case. The global energy system is under its largest disruption since the 1970s, and markets are only beginning to absorb the full consequences.
Brent crude, which was trading around $69 per barrel in late February, surged to a peak of $126 before stabilising in the $100 to $110 range through late March. The IEA's release of 400 million barrels from strategic reserves, the largest on record, has failed to restore normal pricing. US equity markets have declined approximately 5% since the conflict began. Global equities have retreated broadly. Volatility is elevated and showing no signs of structural mean reversion.
This is no longer a paper exercise in scenario planning. The question now is how capital allocators, dealmakers, and business owners navigate a world that has already repriced.
This Is Not COVID, And It Is Not 2022
There is a persistent instinct to reach for analogies. COVID is the most common. It is the wrong one.
COVID was a demand shock. The world stopped consuming, governments flooded the system with liquidity, central banks cut rates to the floor, and stimulus eventually drove consumption back above trend. The recovery, while uneven, followed a relatively legible playbook.
The Russia-Ukraine conflict in 2022 offers a closer parallel, but even that was primarily a sanctions-driven supply disruption, one that was at least partly reroutable. Russian energy found buyers in India and China. Pipelines were redirected. The shock was absorbed, slowly, through substitution.
What we are dealing with now is fundamentally different. The Strait of Hormuz is a physical chokepoint. Roughly 20 million barrels of oil per day, approximately 20 percent of global seaborne supply, transited that waterway before the closure. There is no rerouting it. There is no liquidity injection that restores physical barrels to the market. There is no monetary policy tool that rebuilds the QatarEnergy LNG infrastructure that has sustained missile damage and, by QatarEnergy's own estimates, may take up to five years to fully recover.
You cannot print more supply. That distinction is the most important one for understanding both market dynamics and deal-making conditions over the coming quarters.
The Strait Is No Longer a Tail Risk. It Is the Current Reality.
Much of the pre-conflict analysis, including commentary published in the weeks before the strikes, correctly identified the Strait of Hormuz as the defining tail risk in the geopolitical environment. The analysis was right about the mechanism. What it underestimated was the timeline.
Iran has not applied indirect pressure. It has effectively closed the strait. As of late March, Iran had made over 21 confirmed attacks on merchant ships. Nearly 2,000 vessels remain trapped inside the Persian Gulf, according to the International Maritime Organization. Tanker traffic through the strait has fallen from approximately 50 vessels per day in each direction to near zero.
The US military began operations to reopen the strait on 19 March. Progress has been limited. President Trump has publicly stated his intent to escalate further, while simultaneously floating the option of a US withdrawal and leaving allied nations to manage the problem. Neither path offers a clean or rapid resolution. Industry executives and analysts have warned that meaningful deterioration in the supply situation could occur if the strait remains substantially closed past mid-April.
The energy market has repriced accordingly, though forward curves still embed some optimism around resolution that may prove difficult to justify.
Markets Are No Longer Trading Narrative Over Fundamentals
Several weeks ago, it was accurate to observe that markets were being driven more by narrative and political signalling than by underlying fundamentals. That window has closed.
The Bloomberg Commodity Index rose 24 percent in Q1 2026, with energy leading. BCOM Energy posted its largest quarterly move since 1990, up 63 percent in total return terms. US gasoline prices exceeded $4 per gallon for the first time since 2022. European natural gas prices approximately doubled. Bond markets sold off, with the Bloomberg US Aggregate Bond Index falling 2 percent in March as inflation concerns mounted.
Gold, which had been a beneficiary of dollar debasement in prior months, fell 11 percent in March as investors rotated toward energy exposure and more direct inflation hedges. The traditional safe-haven playbook has been disrupted by the specific nature of this shock.
Equities broadly fell. The Federal Reserve held rates steady at its March meeting and has signalled that it is watching carefully before making any moves. Fed Chair Powell acknowledged that near-term inflation expectations have risen significantly, driven by the oil supply disruption. The dual mandate, stable prices and maximum employment, is under strain simultaneously. February non-farm payrolls printed a loss of 92,000 jobs, well below consensus. Stagflation risk is not a theoretical concern. It is appearing in the data.
Implications for Capital Markets
Capital markets are functioning but under meaningful stress. The cost of capital has risen and the spread between available financing and required returns has widened materially.
Energy-driven inflation feeds directly into broader price indices, and the second-order effects through freight costs, manufacturing inputs, food prices, and wages are only beginning to appear in headline CPI. The Fed cannot ease into this environment without risking an acceleration of inflationary pressure. Rate cuts are off the table for the foreseeable future, and the probability of further tightening has risen.
Liquidity is not disappearing, but it is concentrating sharply. Capital is flowing toward sectors with visible, near-term cash flows and tangible asset backing. Infrastructure, domestic energy, defence, aerospace, and essential services are attracting strong interest. Growth narratives built on long-dated assumptions and cheap capital are being discounted aggressively.
Time horizons have compressed materially. Investors are prioritising businesses that can demonstrate resilience over the next 12 to 24 months, not those whose value is predicated on conditions normalising over a five-year horizon.
Middle Market M&A Dynamics
The middle market is navigating a more complex environment than it has faced in several years, and in some respects more complex than at any point since the global financial crisis.
Several dynamics are operating simultaneously. Valuation dispersion has widened significantly. High-quality businesses with durable cash flows, pricing power, and exposure to sectors benefiting from the current environment, including domestic energy, logistics, defence supply chains, and essential infrastructure, are transacting at strong multiples. Businesses reliant on discretionary demand, import-heavy supply chains, or cheap financing are facing downward pressure on both valuations and deal certainty.
There is effectively no single market multiple operating today. There are two parallel markets.
Strategic buyers are becoming more active relative to financial sponsors. Private equity remains present but highly selective, driven by elevated financing costs and a more cautious LP base. Strategic buyers, particularly those focused on supply chain resilience, vertical integration, and securing domestic production capacity, are moving with urgency that was not present six months ago.
The infrastructure and energy services sectors are seeing the strongest demand. These businesses offer tangible value, physical assets, and cash flows that are increasingly correlated with the inflationary environment rather than inverse to it. For sellers in these sectors, the window is constructive. For buyers, the opportunity is in identifying assets whose value has not yet been recognised by a market still absorbing the speed of change.
Domestic Energy as a Defining Strategic Theme
The investment thesis around domestic energy has moved from opportunistic to structural. The rationale is now self-evident.
With approximately 20 percent of global seaborne oil supply disrupted and no near-term resolution visible, buyers in Asia, Europe, and elsewhere are turning to US barrels. The United States is the world's largest oil producer, pumping a record 13.6 million barrels per day. That position is increasingly strategic, not merely commercial.
The implications extend across the value chain. Domestic upstream operators, oilfield services businesses, midstream infrastructure, and energy logistics companies are all benefiting from a structural shift in demand that is unlikely to reverse quickly even if the Strait of Hormuz reopens. Infrastructure damaged in the conflict, including major LNG facilities, may take years to repair. The supply picture is not simply about the duration of the current crisis. It is about the long-term restructuring of global energy flows that is already underway.
Capital is being allocated accordingly. Dealmakers and investors who are not actively considering energy and energy-adjacent assets in this environment are working with an incomplete picture.
Execution in a Dislocated Market
Process discipline has never mattered more. In an environment defined by volatility, uncertainty, and rapidly shifting market conditions, the quality of execution is a direct driver of outcomes.
Broad, untargeted outreach is less effective than it was twelve months ago. Investors are more selective, requiring a clearer and more specific narrative around resilience, cash flow visibility, and downside protection. The ability to demonstrate how a business performs under stress, not just under optimistic assumptions, is now a threshold requirement rather than a differentiating factor.
Identifying and engaging the right counterparties early is critical. The market is moving fast, and the pool of actively deploying capital is narrowing. Precision and preparation have replaced volume as the key drivers of successful processes.
For businesses considering a transaction, the timing question is more nuanced than usual. For those in sectors benefiting from current conditions, the environment is constructive now. For those facing headwinds, the calculus is more complex, and waiting for normalisation carries its own risks in a world where the timeline to normalisation is genuinely uncertain.
Final Thought
The scenario that pre-conflict analysis identified as the defining tail risk has materialised. The Strait of Hormuz is effectively closed. Energy prices have surged. Inflation is re-accelerating. Equities have fallen. The Fed is constrained. Recession risk is rising in Europe and building in the United States.
Markets are still processing the speed and scale of what has happened. Forward curves embed some optimism about resolution that may or may not prove justified. The gap between that optimism and physical reality, damaged infrastructure, stranded vessels, disrupted supply chains, is where risk continues to build.
In both a resolution scenario and a prolonged disruption scenario, capital will continue to move. It is already moving. The question for every market participant is whether they are positioned ahead of that movement or reacting after the fact.
The answer to that question will define outcomes for the next several years.
Moses Elwon is a Partner at BlackRose Group, focused on middle market M&A and capital formation.