Investors and markets cannot fully shrug off the volatility stemming from ongoing tensions in the Middle East. Shipping disruptions in the Strait of Hormuz have fueled volatility in oil prices, raising the risk of renewed inflationary pressures and increasingglobal marketvolatility.
Higher energy costs could fuel price pressure and complicate central bank policy decisions, further unsettling investors already on edge after a volatile start to 2026. The CBOE Volatility Index, which reflects market expectations of near-term volatility, has risen since the strike, extending this year’s volatility surge and signaling growing market anxiety.
The S&P 500 Index has declined about 1.5% since Feb. 27 and slipped roughly 0.21% in Tuesday’s trading session. This came despite comments from President Trump suggesting that the Middle East conflict may be nearing an end, which sent oil prices lower.
Additionally, as quoted on Yahoo Finance, the International Energy Agency (IEA) is evaluating a potential emergency oil reserve release that could be the largest in its history. The proposal, estimated at 300 million to 400 million barrels, would significantly surpass the 182 million barrels released by member countries in 2022 following the Russian invasion of Ukraine.
This can be viewed as a positive signal for markets, given the risks posed by continued disruptions to oil supplies. According to Reuters, Saudi Arabia's Aramco has cautioned that the Iran conflict could trigger “catastrophic” consequences for global oil markets if shipping through the Strait of Hormuz remains disrupted.
Per Amin Nasser, Amarco’s CEO, as quoted on the abovementioned Reuters article, extended disruptions could lead to increasingly severe consequences for the global economy.
ETFs to Consider
Below, we have highlighted a few ETF areas that investors may consider increasing exposure to as Middle East uncertainty persists, helping protect portfolios from potential economic headwinds.
Volatility ETFs
Increasing exposure to volatility ETFs as a short-term allocation may help hedge downside risks, proving to be a winning move for investors. These funds deliver short-term gains during periods of market chaos and may climb further if volatility continues.
In the current economic environment, volatility-focused funds and strategies are ideal for investors with a short-term horizon. Investors can consider iPath Series B S&P 500 VIX Short-Term Futures ETN VXX, ProShares VIX Short-Term Futures ETF VIXY and ProShares VIX Mid-Term Futures ETF VIXM.
Gold ETFs
Across extended investment periods, gold preserves its purchasing power, outpacing inflation. It is a valuable tool for portfolio diversification due to its historical tendency to have a negative correlation with other asset classes. As investors flock to traditional safe-haven assets like gold amid ongoing Middle East tensions, allocating to the yellow metal may be a prudent strategy.
Investors can consider funds like SPDR Gold Shares GLD, iShares Gold Trust IAU and SPDR Gold MiniShares Trust GLDM.
Consumer Staples ETFs
Increasing exposure to consumer staple funds can bring balance and stability to investors’ portfolios. Investors can allocate more money to consumer staple funds to safeguard themselves against potential market downturns.
Investors can consider Consumer Staples Select Sector SPDR Fund XLP, Vanguard Consumer Staples ETF VDC and iShares U.S. Consumer Staples ETF IYK.
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ProShares VIX Short-Term Futures ETF (VIXY): ETF Research Reports
Vanguard Consumer Staples ETF (VDC): ETF Research Reports
iShares U.S. Consumer Staples ETF (IYK): ETF Research Reports
ProShares VIX Mid-Term Futures ETF (VIXM): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
