Sustainable Opportunities Funds: Energy prices rise as geopolitical tensions persist

An environment of higher oil and gas costs should be positive for renewables long term. Some countries are focusing on coal in the short term, but governments are looking to accelerate their investment in clean technologies and reduce their reliance on fossil fuels. Following Russia's invasion of Ukraine, renewables investment has risen across Europe and is set increase further due to the effects of the Middle East conflict.

The recent rapid rise in energy prices has weighed on bonds, with markets now pricing in interest rate rises by the end of 2026 as opposed to cuts before the war broke out. Thus far the bond market reaction has been clearly focused on inflation but higher energy prices, should they persist, would be expected to weigh on growth which in turn would provide some support. This dual, opposing impact of energy crises has previously led to central bankers looking through shocks with the belief that the need to raise rates to curb higher inflation is roughly offset by the need to lower rates to support growth.

It is well known that Donald Trump has a keen eye on the markets and the oil price. Consumers in America typically start balking at their president when fuel costs more than $4 a gallon, where it currently sits. There are clear signs that he is looking for a resolution soon rather than letting the conflict go on and markets are pricing the same. Although periods such as these are uncomfortable for investors, they are not unusual, and remaining invested has historically been the best strategy.