Iran, Markets and the New Age of Geopolitical Leverage

Iran had many chances to close Hormuz during the upheavals of the 1970s, the Tanker war of the 1980s, and the Gulf crises of the 1990s, but never fully did. This time, this global trade chokepoint has become the lynchpin of the U.S.-Iran conflict. New York Life Investment Management sees this shift as part of a broader change in how geopolitical leverage, policy, and markets interact – and the ultimate downstream impact these factors may have on portfolios.

Weaponized interdependence comes to the Gulf

At the time of publication, a U.S.-Iran ceasefire is in place and Iran is exerting control over transit through the Strait of Hormuz. Shipping has resumed only cautiously, with traffic far below normal. Even once the conflict is resolved, investors should expect continued volatility and a longer road to normalization for both Strait traffic and energy pricing.

The market reaction has centered on oil and related commodities, with knock-on effects for inflation and growth. Equally important, the conflict has turned global interdependence into a strategic factor in the confrontation. The United States is still using maritime and financial pressure on Iran, while Tehran has shown it can control access through Hormuz depending on the state of negotiations.

For much of the post-Cold War era, investors could assume that interdependence dampened geopolitical risk. Today, governments no longer see economic linkages only as engines of growth. They increasingly see them as instruments of power.

Writing geopolitical regime change into policy

The Iran conflict should not be viewed in isolation. It sits alongside other developments that all point to a more contested and security-first world: China’s long-running use of market access and supply chain leverage as a political tool, Europe’s rearmament and industrial reset after Russia’s invasion of Ukraine, Japan’s shift from postwar restraint toward deterrence, and a United States that is increasingly linking trade, alliances, and industrial capacity to national power.

In the United States, that shift is becoming visible in policy. Washington is no longer just trying to shape strategic industries through subsidies, tariffs, or public messaging. In critical minerals, for example, it is increasingly acting like a strategic investor, using equity stakes, warrants, and conditional financing to accelerate domestic processing, recycling, and capacity. The government is moving from setting the rules of the game to writing checks and, in some cases, taking a direct stake in the outcome.

As weaponization spreads fragmentation follows

It’s not important who weaponized interdependence first, but how broadly the practice is now spreading. China was an early mover, using market access, export controls, and supply chain leverage to raise the cost of political disagreement. The United States has done so in its own way, most visibly by weaponizing use of the U.S. dollar after Russia’s invasion of Ukraine.

But there is a limit to how long that geopolitical leverage lasts. Push too far, and the rest of the system starts to adapt: we are already seeing calls for more pipelines that bypass Hormuz, more storage, and more incentive to reduce dependence on the Strait altogether. It is the same logic that applies when the United States leans in more aggressively with sanctions and restricting access to dollar-based payments systems. The short-run effect may be geopolitical leverage. The longer-run effect is greater fragmentation.

Investment themes for a more contested world

Investors must now consider how a more fragmented global system is changing inflation, market leadership, and the direction of capital.

• First, national efforts to build resilience are replacing the prioritization of efficiency and cost savings. Companies and countries are paying more for supply chain redundancy, domestic capacity, and trusted partners. This raises costs and also changes where and how capital flows. Security-sensitive infrastructure, energy systems, critical minerals, defense, semiconductors, and logistics have all become more strategic national investments.
• Second, geopolitical fragmentation may drive more structural inflation risk. In a world where supply chains are shortened, energy routes are vulnerable, and governments intervene more aggressively in trade and industry, the bias is toward structurally stickier prices and greater volatility across commodities and currencies.
• Third, as with the reset in global yields after the pandemic and Russia’s invasion of Ukraine, markets may begin to price a world where shipping, trade, and energy security carry a higher structural cost. The path to price normalization remains highly uncertain, which means investors should be prepared for continued volatility and changing leadership. In our view, the right response is diversification: not making one big bet on how the conflict ends but building portfolios that can absorb a wider range of outcomes

In practice, this means emphasizing diversification across regions, sectors, and policy regimes, while recognizing that real assets, commodities, and strategic materials may play a larger role in a world where security and supply matter more.

At New York Life Investment Management, we offer investors a new playbook, one designed for an era in which growth is driven less by globalization and more by country-level industrial policy and national security.