Market Update: Middle East Conflict and Portfolio Positioning

BRANDY NICLAI, CFA® CIO, Multi-Asset Strategies

The conflict in the Middle East has understandably raised concerns, particularly around energy markets and global growth. While developments remain fluid, the facts available today suggest that the economic impact outside the Gulf region remains limited, and markets are behaving in a historically familiar pattern.

What Is Happening in Energy Markets

Energy prices moved sharply on the first U.S. trading day following the escalation.

Gold increased 2.0%.

Brent crude rose 7.6% and WTI gained 6.6%.

Natural gas rose 4.4%.

At the same time, international equities declined modestly (Developed International -1.9%, Emerging Markets -1.7%), while U.S. large-cap equities were roughly flat. Importantly, the strongest price pressure has been in European natural gas and refined products rather than crude oil alone, reflecting temporary LNG disruptions and tight substitution dynamics in Europe.

Recent developments show a gradual escalation in targeting energy-related infrastructure in the Gulf, including LNG production suspensions in Qatar and reported strikes near refinery storage assets. European benchmark gas prices (TTF) have risen roughly 50%, from about €30 to €45, but remain below peaks seen last winter.  While energy-related infrastructure in the Gulf is now being targeted, there remains a high threshold for direct attacks on crude oil exports. Such a move would likely trigger severe retaliation against Iran’s own export sector, significantly escalating the conflict and increasing the economic costs for all parties.

What This Means for the Global Economy

The Gulf economies will bear the most direct impact. However, the region represents less than 2% of global GDP, limiting the scale of direct spillovers.

For the broader global economy, energy prices are the main transmission channel. Under a moderate disruption scenario, oil could average just under $80 per barrel in the second quarter before gradually easing toward the mid-$60s. In that scenario, world GDP growth would be reduced by approximately 0.1% in 2026 — a modest adjustment that keeps global growth within the range experienced in recent years.

For the United States specifically:

• The peak impact on inflation would likely occur in the second quarter, adding roughly 0.5% to CPI before fading in the second half of the year.
• U.S. GDP growth in 2026 is expected to barely change under this scenario.
• Central banks historically look through temporary energy spikes, particularly when long-term inflation expectations remain stable.

A sustained global selloff historically requires investors to believe that inflation, earnings, or real interest rates will be durably altered. At this stage, that does not appear to be the case. A materially different outcome would likely require a sustained shutdown of the Strait of Hormuz or a prolonged loss of crude oil supply.

Market Behavior: Context Matters

It is also worth noting that historically, once military action begins, volatility often declines and risk assets stabilize. Compared to economic shocks — such as tariff announcements that directly alter growth expectations — geopolitical events tend to produce shorter-lived risk premiums unless energy flows are materially impaired.

Today’s performance reflects that dynamic. U.S. equities were steady, yields and risk-sensitive assets rebounded, and our diversified portfolios across the risk spectrum declined only modestly (-0.22% to -0.29%), demonstrating resilience during the first trading day following escalation.

Portfolio Positioning

With the conflict escalating, we believe there is little about our portfolio positioning that requires significant realignment at this time.

Our portfolios are intentionally constructed to withstand a wide range of economic environments. Diversification across asset classes, geographies, and risk factors is not incidental — it is deliberate. We stress test allocations during portfolio construction to evaluate performance under turbulent conditions and across longer time horizons. That discipline is designed precisely for moments like this.

We continue to monitor energy infrastructure developments and financial market conditions closely. Should the fundamental outlook change meaningfully, we will respond thoughtfully — not reactively.  For now, the base case remains a temporary energy-driven volatility episode, not a structural shift in global growth.

We will continue to provide updates as clarity improves.

Disclaimer: The material presented has been derived from sources considered to be reliable, but accuracy and completeness cannot be guaranteed.

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BRANDY NICLAI, CFA® CIO, Multi-Asset Strategies
Brandy Niclai serves as Chief Investment Officer of Multi-Asset Strategies at Alaska Permanent Capital Management Company. In
this role, she leads the firm’s multi-asset investment platform and is responsible for asset allocation, portfolio construction, and ongoing
investment oversight for institutional clients.

Ms. Niclai works closely with governing bodies and investment committees to align investment strategies with stated objectives, risk
tolerance, and fiduciary responsibilities. She is Alaska Native and brings an Indigenous-led perspective to her work with Native and
Tribal organizations, informed by both professional experience and an understanding of intergenerational stewardship.

Ms. Niclai has over 20 years of investment industry experience. She is a shareholder of the firm.

Education:
MBA, University of Alaska
BA, Washington State University

Credentials:
Chartered Financial Analyst (CFA®)
Series 65