COMMODITIES supercycles can reshape markets for years, if not decades.
We appear to be in one again, as the Iran war has amplified several long-term bullish trends.
The question for many investors has shifted from whether to engage with the supercycle to how. Following the initial US-Israeli strike on Iran on Feb 28, oil recorded its largest monthly gain in history.
Combine that with copper and gold’s substantial gains since mid-2025 – as well as the ongoing race for energy, metals and minerals to fuel the artificial intelligence arms race – and a commodities supercycle appears to be underway.
Commodities supercycles are long, powerful waves driven by major structural shifts. Just think of the oil shocks of the 1970s and China’s urbanisation boom in the early 2000s.
The question, as always, is how investors can participate.
Commodities are often treated as a single asset class, but a bull market is not necessarily a synchronous move across the entire complex. Instead, leadership tends to shift.
So rotation within the asset class can be as important as its overall direction. For example, a geopolitical shock may lift oil prices immediately, yet copper or gold may lag or even fall as investors cut crowded positions or reassess growth risks.
This occurred in 2022 when energy prices surged after Russia’s invasion of Ukraine, while some industrial metals retraced as recession concerns mounted.
We’re seeing such divergence again today. Oil prices spiked 64% in March after the Iran war began as energy supply was squeezed, functioning as a good portfolio hedge against equity market volatility.
Yet gold fell by 12%, recording its worst month since 2008, largely because it entered the shock inflated by months of heavy speculative buying and was one of the few liquid assets investors could sell to meet margin calls.
Given these uneven shifts – and the massive geopolitical uncertainty – what are some of the key points that investors should keep in mind as they consider riding the latest commodity wave?
First, investors should remember that small shifts in commodity allocations can have a massive impact on price.
Commodities are enormously important to the real economy, but as investable markets they are small relative to stocks and bonds.
Within the S&P 500, energy and materials together account for only about 6% of the index, compared with more than 30% for the Magnificent Seven tech giants.
Size matters because price is set at the margin. If even a modest amount of capital rotates out of broad equities or bonds and into commodities – whether through physical exposure or listed derivatives – the impact on prices could be outsized.
A relatively small market can absorb only so much new capital before price adjusts. Interconnectedness is another key issue: one commodity’s move can reshape the outlook for others.
Many commodities are linked through potential demand substitution or as raw materials for each other.
For example, high natural gas prices can lead to more oil consumption. Rising energy prices feed into fertiliser, freight and food prices. Copper and aluminium can substitute for each other in some industrial applications.
Another point to consider is inventories. While firms may prize cost-efficiency when supply is unconstrained, geopolitical shocks can spur a move towards higher inventory levels.
The Iran conflict is a case in point. Tehran’s ability to disrupt roughly one-fifth of the world’s energy supply by blocking the narrow Strait of Hormuz has underscored how vulnerable energy and other goods are to chokepoints.
Moving forward, governments and companies are likely to prioritise security of supply of many goods, producing higher inventory levels across a wide set of strategic materials.
That could create a broader structural premium across the complex.
The next decision is whether to own the underlying commodities or commodities-related equities.
While physical commodities primarily respond to current and near-term supply-demand imbalances, commodity-related equities are impacted by a host of other factors, including each company’s hedging policy, capital allocation decisions, project pipelines, position in the commodity value chain, location and even geological issues.
Consider the energy industry. When crude prices spike, upstream energy firms – those involved in exploration and production – tend to benefit, while refiners and petrochemical firms may suffer from higher input costs.
Not all upstream producers benefit equally, of course.
During the current conflict, US shale production has been insulated from direct damage. These producers also have more flexibility to ramp up or down than most of their Middle Eastern counterparts, due to differing geological profiles and production methods.
Moreover, many US oil companies were well adapted to the pre-Iran war price regime of roughly US$70 per barrel, generating healthy free cash flow at those levels. At current prices of around US$100, the windfall could be substantial. — Reuters
Taosha Wang is a portfolio manager at Fidelity International. The views expressed here are the writer’s own.