The environmental and market impact of the Iran conflict

Friday 22nd May 2026

Sustainability still matters

Environmental, Social and Governance (ESG) investing was once at the forefront of financial and corporate discussions, but in recent years it has understandably been overshadowed by geopolitical instability following Russia’s invasion of Ukraine and the wider global uncertainty that has followed. More recently, President Trump’s outspoken scepticism on climate change — including his comment that environmental concerns are “one of the great scams of all time” — has certainly not helped.

One issue that seems to get little publicity, but is of significant concern, is the environmental impact of the conflict in Iran, and the wider implications this may have for both the planet and global markets.

Impact on the environment

The damage to oil infrastructure, including refineries, fuel depots and shipping facilities, has already had serious environmental consequences. Large oil fires and toxic smoke emissions have affected air quality across the region. Sulphur dioxide pollution and marine contamination in the Persian Gulf have raised fears about long-term ecological damage. A major oil slick near Iran’s Kharg Island, for example, has heightened concerns for marine ecosystems and shipping routes.

The conflict has also contributed to a significant rise in carbon emissions. Burning fuel facilities, increased military aviation activity, and the energy demands associated with emergency response and future reconstruction, are all adding to greenhouse gas emissions. Some estimates suggest that the first two weeks of the conflict alone may have generated more than five million tonnes of CO₂ equivalent emissions. That is equivalent to the annual greenhouse gas footprint of roughly 525,000 average UK residents.

Researchers warn that the impact could include increased respiratory illnesses, contamination of agricultural land, damage to coral reefs and fisheries in Gulf waters, and even accelerated glacier melt caused by soot deposits. Ironically, one consequence is that the disruption caused by fossil-fuel dependence will accelerate investment into renewable energy.

These events are a stark reminder that environmental risks remain deeply interconnected with geopolitical events and global economic stability — and why ESG considerations continue to matter for long-term investors. Although of course it may be just another scam!!

Impact on global stock markets

While equity markets initially appeared relatively resilient, investors are becoming increasingly cautious as the longer-term economic consequences begin to emerge. Rising oil prices — now around $110 per barrel — together with higher bond yields and growing inflation concerns are putting increasing pressure on companies and consumers alike. Reuters estimates that the conflict has already cost global businesses at least $25 billion.

Some sectors have benefited while others have come under pressure. Energy companies, defence contractors, and commodity exporters have generally performed more strongly, supported by rising demand and higher prices. Certain shipping and logistics businesses have also seen increased activity. By contrast, sectors more sensitive to consumer spending and rising costs — including airlines, manufacturing, and consumer discretionary companies — have struggled. European markets in particular appear vulnerable given ongoing energy dependence and relatively weaker economic growth.

Bond market impact

Bond markets have perhaps had the biggest impact. Traditionally, periods of geopolitical uncertainty encourage investors to seek safety in government bonds, pushing yields (interest rates) lower. In simple terms, bond yields represent the return investors receive for lending money to governments. These yields have risen significantly over the past few years and had been falling with an expectation of lower interest rates this year, meaning an optimistic view of the year ahead. All until the “war of choice”.

As a consequence, yields on US Treasuries, UK gilts and Japanese government bonds have all moved sharply higher. Markets increasingly see the Iran conflict not simply as a geopolitical event, but as leading to longer-term inflation. Higher energy prices, supply disruption and increased government spending are all contributing to concerns that inflation may remain higher for longer. Deja vu back to 2022, when inflation led to higher interest rates which meant the value of Bonds fell.

In the UK, gilt markets have been particularly sensitive, with investors concerned about Britain’s exposure to imported energy inflation and wider financial pressures. Ten-year gilt yields have risen towards levels not seen for many years, while expectations for Bank of England rate cuts have reduced significantly, and indeed there is talk of rate rises. We are not convinced there will be significant rate rises, but certainly the expectation of cuts has disappeared. Of course, the current political turmoil we are experiencing has not helped, watching the UK 10 Year gilt yield yoyo as Andy Burnham spoke on Monday, when stability is what markets want.

Although higher yields can cause short-term fluctuations in bond prices, they are also creating more attractive long-term income opportunities for investors, so annuity rates have increased for example. The interest rates on your savings and mortgages have jumped so good news for savers but bad news for borrowers. Negative reporting about the UK finances is frustrating. The UK can be viewed positively, as despite recent market concerns, our financial position remains stronger than that of the USA in several areas, including lower government borrowing levels relative to the size of the economy.

Conclusion

Despite all the challenges, the global economy continues to show surprising resilience. Business activity remains reasonably healthy in many parts of the world, employment markets are holding up well and economic growth has generally been stronger than many economists expected — particularly in the US and increasingly in the UK. China is also showing early signs of recovery after a prolonged slowdown.

Overall, markets are currently trying to balance three major forces: stronger-than-expected economic growth, ongoing inflation pressures and elevated geopolitical uncertainty.

While periods of market volatility are likely to continue, there are also reasons for cautious optimism. Higher bond yields are improving future income opportunities for investors, global growth remains relatively resilient and diversification across different asset types continues to play an important role in helping manage uncertainty over the long term.

Let’s hope the wars of choice end soon, not only to give certainty to businesses and markets, but to also stop the pointless environmental damage and human suffering being caused.

Five Million Step Challenge

Dorothy House Hospice, based in Bradford-on-Avon, is our preferred charity. In May 2025, our team took 4,226,715 steps to raise money for this wonderful cause. This May we are aiming to go further, with a target of five million steps. 9 days to go and we are slightly behind target, but the team are relishing the challenge!

For more information please go to www.dorothyhouse.org.uk and if you would like to make a donation please visit our JustGiving page. Thank you for your generous support.