WHEN I shared the 2026 outlook with readers in February, tensions in the Middle East were already building. Iranian street protests and the US capture of Venezuela’s President Maduro highlighted the need for investor vigilance amid rising geopolitical uncertainty. Maintaining portfolio resilience through gold exposure and disciplined portfolio reviews was essential.
Since then, the conflict has escalated into direct confrontation, with crude oil prices becoming the primary channel through which markets are affected. West Texas Intermediate crude is trading between US$90 (RM356.13) and US$120 per barrel, often influenced by US President Donald Trump’s daily social media commentary. The key questions for investors are how and when the conflict may end, and what sustained high oil prices mean for the 2026 investment outlook.
History suggests that geopolitical events rarely drive long-term investment returns. In fact, staying invested during periods of uncertainty has generally rewarded investors. During past oil shocks, when prices surged close to or beyond 100%, the S&P 500 Index still delivered positive returns 12 months later, averaging around 6%. It is also worth noting that a true 100% oil price increase would require prices to rise into the US$120-US$140 range, depending on the starting point.
That said, geopolitical events have at times coincided with economic slowdowns or recessions, typically when underlying economic fundamentals were already weak. This naturally raises the question of whether the current conflict could push Asia into recession.
Asia is the region most exposed to Middle Eastern disruptions, sourcing approximately 48% of its crude oil from the region. North Asian economies such as Japan and Korea, along with Asean countries including Thailand and Indonesia, remain heavily dependent on oil imports. Malaysia and Australia are comparatively better positioned, as exports of commodities such as crude palm oil, thermal coal, and liquefied petroleum gas help offset higher energy import costs.
China stands out due to its substantial strategic oil reserves and its ban on refined petroleum exports, which helps mitigate domestic supply risks. Singapore has announced a S$1 billion (RM3.11 billion) package to support corporates and consumers faced higher cost of utilities and transportation.
Even so, Asia remains vulnerable to rising inflation, increased fuel subsidies, and higher government debt. Demand destruction from sustained high oil prices will likely trim growth but this is not the base case, given the conflict has been ongoing for a mere one month at the time of writing. However, any ceasefire may still be broken given the low trust of all the negotiating parties. Escalation is part of most scenario analysis of the conflict.
Hence, Asian countries are unevenly affected by a potential oil shock given their differing trade balances, fiscal headroom and level of government support in the event of pro-longed high oil prices. Inflation pressures and interest rate policies will also differ. Thus, investors with concentrated exposure to Asia or a single region should expect short-term volatility given continued uncertainty in the Middle East. In contrast, diversified investors with global exposure and gold as a portfolio hedge may find current market weakness — particularly in Asia — an opportunity to build long-term positions.
Asia continues to offer structural growth supported by proactive government policies. China is entering its 15th Five-Year Plan, focused on high-technology investment and trading at valuations that remain attractive relative to developed markets. Its shift toward a consumption-led economy still has room to run, with consumption accounting for less than 40% of gross domestic product compared with over 50% in developed economies.
Similarly, government budgets across Singapore, India, Japan, and Malaysia are targeting investments aligned with technology supply-chain diversification. Heightened geopolitical risks have also driven increased spending on defence, infrastructure, and domestic capital market reforms across the region.
Artificial intelligence (AI) will continue to reshape industries by improving productivity and margins, while also creating sector-specific volatility, particularly in areas such as US software. To mitigate disruption risks, investors may consider exposure to the hardware segment of the AI ecosystem, including semiconductor manufacturing and testing, where structural demand remains robust.
Beyond the Middle East, 2026 is set to be another eventful year. The US Federal Reserve is expected to appoint a new chair in May, followed by the US mid-term elections in November. Investors who stay disciplined, focus on long-term objectives, and regularly review and rebalance their portfolios while generating income; are well positioned to benefit from compounding growth over time.
Keep calm and carry on investing.
Michael Lai is the executive director of wealth advisory (wealth management) at OCBC Bank (M) Bhd.