Middle East turmoil lays the case bare for real portfolio diversification

The volatile developments across the Middle East — culminating in a dramatic US-brokered ceasefire between Israel and Iran — underscore, yet again, a powerful and urgent truth: diversification isn’t optional. It’s a necessity.

Markets around the world have been on a knife’s edge for nearly two weeks, reacting sharply to every twist in the conflict. Brent crude tumbled nearly 5% after Iran's missile strike on the Al Udeid air base, interpreted by markets as a restrained signal rather than an escalation. 

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With confirmation of the ceasefire, European stocks have surged — Germany’s DAX jumped 2%, the French CAC 40 climbed 1.8%, and futures for the S&P 500 in the US are pointing higher. Yet energy stocks have taken a hit as oil prices slide.

Nigel Green, CEO of global financial advisory deVere Group, said the “whiplash” in prices across commodities, equities, and safe-haven assets is not just a response to geopolitics — it’s a “flashing red warning light” for investors with narrow allocations.

“The events of the past two weeks are a textbook case for true portfolio diversification,” he says. 

“One day oil is spiking on nuclear fears, the next it’s plunging on de-escalation. Stocks swing wildly depending on headlines out of Tehran or Tel Aviv. You can’t build or preserve wealth if your investment strategy is overly concentrated in one region, sector, or asset class. That’s not a strategy; that’s a gamble.”

As the conflict escalated, oil prices spiked on fears of supply disruption. Brent crude surged above $72 before crashing back to near $68 following signs of restraint and the ceasefire announcement. Defence stocks rallied while Middle East-exposed emerging markets sank. Gold flirted with $2,400 as investors scrambled for safety.

Daniela Sabin Hathorn, senior market analyst at Capital.com, said the broader market response to Iran’s recent military action has been surprisingly subdued. The attack — targeting a US military base — was expected to rattle investors, yet the global reaction has been more one of tentative relief than alarm. This suggests the strike was largely symbolic rather than escalatory in nature, limiting its impact on financial markets.

"Despite the pullback, the move appears to be relatively controlled. Long-term fundamentals supporting gold remain intact, though technical traders are now eyeing the $3,330 level as a key support zone. A decisive move below this threshold could signal a deeper retracement and a change in market sentiment."

Nigel Green says that for investors, this sequence of events should trigger immediate action.

“Every global investor must ask themselves today: Am I protected against geopolitical shocks? Do I have meaningful exposure to counter-correlated assets? Am I truly diversified across sectors, geographies, currencies, and asset classes?”

“Diversification doesn’t mean owning five different tech stocks or parking all your money in a single bond fund. It means uncorrelated positions across the risk spectrum—think gold, infrastructure, dividend-paying stocks, green energy, and alternatives like real estate and digital assets,” Green said. 

Mideast tensions out, trade uncertainties in

Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, said Middle East tensions suddenly waned after Iran fired missiles at a US air base in Qatar — having reportedly informed the US in advance. As a result, the missiles were intercepted. President Trump called Iran’s move ‘weak’ and announced a few hours ago that Israel and Iran had reached a ceasefire agreement.

“A surprisingly swift development. Once again, Iran appears to have retaliated just enough to save face — without triggering broader escalation. Tensions will likely ease from here if Israel reciprocates. However, it remains unclear whether an actual ceasefire is in place, as missiles reportedly continue to be fired across the border. Iran has said it will stop if Israel does, but Israel has yet to make a formal statement,” Ozkardeskaya said.

Nigel Green also warns that while the ceasefire offers relief, it doesn’t remove risk.

This truce is fragile. It’s politically brokered and militarily uneasy. One wrong move and tensions could flare again, dragging markets down with them. That’s the danger of relying too heavily on a single narrative or region in your portfolio.”

The deVere CEO notes that while markets may breathe a sigh of relief in the short term, the deeper issue is structural instability in a critical region for energy, security, and global trade routes.

“The Middle East remains a geopolitical powder keg, and history tells us that calm doesn’t last. What does last is a properly diversified portfolio, one that absorbs these shocks without falling apart.”

With global equities rallying and oil prices sliding, some investors may be tempted to lean back into familiar strategies. Nigel Green says this would be a critical mistake.

“When markets are jittery, many investors double down on what they know— often increasing risk without realising it. What’s needed now is a measured, deliberate shift into broader exposure.”

“You diversify when the skies are clear, so that you’re protected when the storm breaks. But after what we’ve just seen in the Middle East, the need for real diversification isn’t hypothetical, it’s immediate,” Green concluded.

Muzaffar Rizvi

Muzaffar Rizvi is an accomplished financial journalist with more than 25 years of experience in the UAE and Pakistan. He has good writing skills, strong grip on production and an excellent news sense.

muzaffarrizvi@khaleejtimes.com