11 ASX ETFs to help navigate the ongoing Iran conflict and what happens next

"This is obviously an asset with a lot of volatility, but a lot of investors are also looking to use oil as a potential hedge for the rest of their portfolio."

He puts forward the Betashares Crude Oil Index Currency Hedged Complex ETF (ASX: OOO), which tracks an index of oil futures, as a way to position for elevated oil prices. 

The ETF set a record for one-day return for an ASX ETF on March 6, on the same day the Australian equity index recorded its largest fall since Covid. It then dropped by almost the same amount the following day, evidence of the volatility seen in oil prices as a result of the conflict. 

"It is one way that you can look to hedge your portfolio or provide an offset for what might happen to your equities or in your bonds," says Gleeson. But he warns that it remains a hugely volatile asset. "These are near term oil futures and it's not for the fainthearted."

He also identifies other areas of opportunity from a longer-term disruption to the supply of oil. One is global energy companies. 

"What commodity markets are telling us is that while there's a lot of volatility in oil for delivery today," says Gleeson, "the movements in oil further down the track have been far more muted and that's played through to the returns of global energy companies."

Other potential areas of focus are global agriculture companies, which could stand to benefit from elevated fertiliser prices.

As Gleeson points out, "roughly a third of fertilisers globally are shipped through the Strait of Hormuz, and we're starting to see that fertiliser prices are spiking in the US and other locations."

The Betashares Global Agriculture Companies Currency Hedged ETF (ASX: FOOD) offers exposure to that narrative.

Another potential knock-on effect of high oil prices is the impact it has on inflation, which is yet to be reflected by the market.  

"Right now, inflation expectations are spiking in the short term, but haven't necessarily moved significantly in the long term," said Gleeson. "We see this through the pricing of fixed income markets."

For investors wanting to hedge against higher inflation, the Betashares Inflation-Protected U.S. Treasury Bond Currency Hedged ETF (ASX: UTIP) is designed to offer a fixed income alternative with built-in inflation hedging. 

"Inflation-protected bonds are really interesting because they provide a coupon, which is based on a fixed rate, but the face value of these bonds actually grows by realised CPI over time."

Finally, gold could present an opportunity for investors as a recognised hedge against US-led geopolitical instability, says Gleeson.

"Structurally, the long-term tailwinds for gold still looks strong," says Gleeson. "If the US is going to be more aggressive militarily, we're likely to see that countries that want to remain unaligned to the US will look to replace more of their US treasuries with gold." 

The Betashares Gold Bullion Currency Hedged ETF (ASX: QAU) is backed by physical bullion and looks to track the price of gold, hedged against movements in the AUD/USD exchange rate.

Scenario 2: Playing a rapid deescalation

"We're going to see increased spending to backfill depleted stockpiles. When we have a conflict like this, there's obviously some learnings for militaries and a need to invest in new technologies. Regardless of the outcome, you're going to see continued growth in defence spending."

The Betashares Global Defence ETF (ASX: ARMR) offers exposure to global defence-related companies across NATO countries and allies.

2. Nuclear energy and critical minerals

The other agnostic thesis could be a growing demand for alternative energy sources, as countries look to reduce their reliance on oil. 

Betashares offers two ways to play a pivot away from oil. 

The first is the Betashares Global Uranium ETF (ASX: URNM), which offers access to global uranium companies. The second is the Betashares Energy Transition Metals ETF (ASX: XMET), which provides exposure to critical mineral producers in the clean energy sector. 

In a fluid, fast-moving geopolitical crisis like this one, avoiding missteps should be priority one for investors. But understand volatility creates opportunity, and well-positioned portfolios can prosper regardless of what happens next. 

These scenarios are illustrative only and not predictions. The ETFs referenced are examples of exposures and are not recommendations. In some instances, we look to previous periods of market stress to illustrate how certain exposures have behaved historically. Investors should form their own view as to the relevance of historical examples, noting that conditions are never exactly the same, and that past performance is not indicative of future performance.