How war reshapes portfolio construction
April 2026
As fiduciaries entrusted with the management of investor capital, Russell Investments (the investment adviser for the Cornerstone portfolios) believes it is critical to consider the larger consequences of the Middle East conflict rather than react to the fast-moving daily news cycle.
History shows most geopolitical events don’t leave a lasting impact on markets. However, on some occasions wars can reshape a region’s or the world’s economic footprint, directly influencing investment markets.
The impact of the 1973 Yom Kippur War, for example, was stark. It led to an oil embargo, a doubling of West Texas Intermediate oil prices, energy rationing and a severe supply shock that caused a global recession.
Shocks such as these are usually pinpointed to a small number of economic drivers. If, over time, these shocks are repeated, it can change what the economic landscape means for how your investment portfolios are managed.
In Russell Investments’ view, the U.S.-Israel-Iran conflict and the global geopolitical landscape prior to this conflict have created two longer-term developments that will greatly impact the way we build portfolios:
The shift from oil to broad commodities
Crude oil long dominated geopolitics and its impact on investment markets, but the world has shifted. The U.S. is now the largest oil and gas producer and a net energy exporter, giving it less cause for concern over disruption to global supply chains.
Today, metals, rare earths and semiconductors sit at the intersection of artificial intelligence, defence and the energy transition, making them strategically critical. Supply chains are concentrated: China holds nearly 50% of reserves, around 70% of production and around 90% of separation and refining. This concentration means thinking about how your investments are positioned when it comes to exposures across industry value chains and where sources that supply these industries may be scarce.
The shift from trade flows to production networks
When you are reading economic data in relation to investing, it’s important to understand the shortcomings of simplistic metrics and measurement tools. Some of these tools include phrases often used in financial news – like trade flows, share of gross domestic product (GDP) and index weights.
Take Taiwan as an example: it is responsible for just 2% of global exports and 1% of global GDP. Yet it produces almost all of the world’s advanced semiconductors – which are crucial inputs into technology that makes everyday life possible.
The country’s rise as an integral player in the global economic supply chain became most evident post COVID-19 with any bottlenecks quickly cascading through the global economy.
The takeaway
Headlines will keep driving short-term volatility, but the bigger question is how repeated geopolitical shocks can change the long-run rules for investing. In this conflict, two shifts stand out: the world’s strategic focus is moving beyond oil to broader commodities critical to AI, defence and the energy transition, and supply chains are increasingly defined by concentrated production networks rather than simple trade flows.
The implication for investors isn’t to predict the next flashpoint, but to build portfolios that reflect these realities by balancing growth with resilience.
Ironbark Advice is the sponsor of the Cornerstone Financial Group Pty Ltd.
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