Geopolitical shockwaves: How the Middle East war is reshaping securities finance activity
14 April 2026
Matt Chessum, executive director of equity and analytic products at S&P Global Market Intelligence, looks at the impact of the Iran conflict on short selling and securities lending activity
Image: Shutterstock
The escalation of hostilities involving Iran in March marked one of the most significant geopolitical shocks to financial markets in recent years. Beyond the immediate reaction across energy, shipping, and regional equities, the conflict had a profound impact on the securities finance market, altering balance dynamics, intensifying lending activity and driving highly concentrated borrowing in assets directly exposed to the conflict.
One of the clearest signals of this shift has been a pronounced contraction in global lendable supply. As risk aversion increased and asset owners moved to protect liquidity, average securities lending balances fell sharply throughout the month of March. Balances declined from over US$50 trillion at the beginning of the month to US$46.9 trillion by 31 March, reflecting portfolio deleveraging, equity market weakness, and a rotation into cash and short-duration instruments. In periods of geopolitical stress, beneficial owners can often reduce lending programmes or recall inventory, tightening supply just as demand begins to rise. During the month of March, demand to borrow securities did rise significantly, pushing on loan balances to one of their highest levels since the collection of market data started.
Lendable vs balances (ex-financing) across all securities 2026
Energy markets and the return of event-driven shorts
Energy equities were one of the sectors at the centre of March鈥檚 borrowing activity. While crude prices surged on fears of supply disruption, particularly around the Strait of Hormuz, the sustainability of the rally quickly came into question. Investors became increasingly wary that political intervention, strategic reserve releases, or demand destruction, through higher inflation, could abruptly reverse price gains.
This uncertainty was accompanied by an increase in borrowing activity across volatile energy producers, one of which was Battalion Oil Corp (BATL). By 27 March, BATL saw 17.78 per cent of shares outstanding on loan, with utilisation (percentage of available shares on loan) reaching an impressive 95 per cent, signalling scarcity of lendable supply. The surge possibly reflected BATL鈥檚 sensitivity to oil price swings, its leveraged balance sheet and concerns that higher prices might not translate into lasting financial stability. For many market participants, BATL emerged as a prominent target for event-driven positioning, expressing scepticism that geopolitical premiums alone could offset possible structural vulnerabilities.
Borrowing demand also rose in Canadian Natural Resources (CNQ), albeit for more strategic, portfolio-level reasons. As one of Canada鈥檚 largest energy producers, CNQ could be seen to offer liquidity and scale, making it an effective proxy for hedging downside risk across the global energy complex. Elevated short interest may have reflected fears that prolonged instability could weigh on global growth, trigger policy responses such as windfall taxes, or introduce regulatory risks that cap upside price moves despite elevated crude prices.
Commodity-linked ETFs also featured prominently. United States Oil (USO) saw increased borrowing as market participants expressed possible scepticism over the durability of the oil price rally. Short interest in USO reflected expectations that emergency supply measures, weaker demand or a potential diplomatic de-escalation could unwind geopolitical risk premiums embedded in crude markets.
Shipping disruption targets global trade exposures
The conflict鈥檚 impact extended well beyond oil itself. Heightened threats to maritime trade routes pushed shipping stocks back into the spotlight, as increased borrowing in A.P. M酶ller-Maersk A/S was seen. While higher freight rates can be positive in the short term, investors may have been growing cautious regarding sustained disruption to global supply chains, rising insurance and fuel costs, and the potential for reduced trade volumes if the conflict were to escalate further.
Borrowers may have been using Maersk to reflect concerns about earnings volatility and margin compression in a world where geopolitical risk, rather than demand fundamentals, dictates shipping conditions. The result was a steady rise in securities lending demand for the stock as investors positioned defensively against a historically cyclical sector facing elevated uncertainty.
Regional ETFs and extreme fee spikes
Regional exposure to the Middle East was most clearly expressed through ETFs, where securities lending tends to react rapidly to macro and geopolitical shocks. The iShares MSCI UAE (UAE) exchange traded fund experienced a sharp increase in borrowing demand during the month as investors reassessed Gulf exposure amid rising regional risk. Although the UAE itself remained relatively stable, its economic ties to energy markets and proximity to the conflict made the ETF a commonly used vehicle for hedging regional exposure.
This pressure may have contributed to the spike in borrowing costs, with UAE鈥檚 volume-weighted average fee (VWAF) peaking at 6,700 basis points on 18 March. Such levels highlight increased demand amid constrained lendable supply, and underline how quickly geopolitical stress can feed through to securities finance pricing. The spike is likely to have reflected both directional shorts and relative-value trades, where investors sought protection against regional volatility without selling underlying cash holdings.
Broader implications for securities finance
March illustrated a familiar but powerful dynamic in securities lending: overall balances increased sharply as revenue opportunities emerged through concentrated demand and higher utilisation in select assets. Borrowing activity became increasingly targeted, focused on equities and ETFs most sensitive to geopolitical outcomes rather than broad market hedges.
For lenders, this environment presented both opportunity and risk. Elevated fees in names like BATL and UAE enhanced returns, but only where counterparty, liquidity and collateral risks were rigorously managed. For borrowers, tight supply and rising costs increased the importance of timing and position sizing, particularly as headline risk continued to dominate price action.
As the conflict in the Middle East remains unresolved, securities finance markets are likely to stay reactive. Energy producers, shipping firms and regional ETFs will remain focal points for borrowers, while balance volatility underscores how quickly geopolitical events can reshape lending behaviour. If nothing else, March has made one thing clear to all market participants: in times of conflict, securities lending becomes one of the most immediate and revealing channels through which market stress and positioning can be expressed.
One of the clearest signals of this shift has been a pronounced contraction in global lendable supply. As risk aversion increased and asset owners moved to protect liquidity, average securities lending balances fell sharply throughout the month of March. Balances declined from over US$50 trillion at the beginning of the month to US$46.9 trillion by 31 March, reflecting portfolio deleveraging, equity market weakness, and a rotation into cash and short-duration instruments. In periods of geopolitical stress, beneficial owners can often reduce lending programmes or recall inventory, tightening supply just as demand begins to rise. During the month of March, demand to borrow securities did rise significantly, pushing on loan balances to one of their highest levels since the collection of market data started.
Lendable vs balances (ex-financing) across all securities 2026
Energy markets and the return of event-driven shorts
Energy equities were one of the sectors at the centre of March鈥檚 borrowing activity. While crude prices surged on fears of supply disruption, particularly around the Strait of Hormuz, the sustainability of the rally quickly came into question. Investors became increasingly wary that political intervention, strategic reserve releases, or demand destruction, through higher inflation, could abruptly reverse price gains.
This uncertainty was accompanied by an increase in borrowing activity across volatile energy producers, one of which was Battalion Oil Corp (BATL). By 27 March, BATL saw 17.78 per cent of shares outstanding on loan, with utilisation (percentage of available shares on loan) reaching an impressive 95 per cent, signalling scarcity of lendable supply. The surge possibly reflected BATL鈥檚 sensitivity to oil price swings, its leveraged balance sheet and concerns that higher prices might not translate into lasting financial stability. For many market participants, BATL emerged as a prominent target for event-driven positioning, expressing scepticism that geopolitical premiums alone could offset possible structural vulnerabilities.
Borrowing demand also rose in Canadian Natural Resources (CNQ), albeit for more strategic, portfolio-level reasons. As one of Canada鈥檚 largest energy producers, CNQ could be seen to offer liquidity and scale, making it an effective proxy for hedging downside risk across the global energy complex. Elevated short interest may have reflected fears that prolonged instability could weigh on global growth, trigger policy responses such as windfall taxes, or introduce regulatory risks that cap upside price moves despite elevated crude prices.
Commodity-linked ETFs also featured prominently. United States Oil (USO) saw increased borrowing as market participants expressed possible scepticism over the durability of the oil price rally. Short interest in USO reflected expectations that emergency supply measures, weaker demand or a potential diplomatic de-escalation could unwind geopolitical risk premiums embedded in crude markets.
Shipping disruption targets global trade exposures
The conflict鈥檚 impact extended well beyond oil itself. Heightened threats to maritime trade routes pushed shipping stocks back into the spotlight, as increased borrowing in A.P. M酶ller-Maersk A/S was seen. While higher freight rates can be positive in the short term, investors may have been growing cautious regarding sustained disruption to global supply chains, rising insurance and fuel costs, and the potential for reduced trade volumes if the conflict were to escalate further.
Borrowers may have been using Maersk to reflect concerns about earnings volatility and margin compression in a world where geopolitical risk, rather than demand fundamentals, dictates shipping conditions. The result was a steady rise in securities lending demand for the stock as investors positioned defensively against a historically cyclical sector facing elevated uncertainty.
Regional ETFs and extreme fee spikes
Regional exposure to the Middle East was most clearly expressed through ETFs, where securities lending tends to react rapidly to macro and geopolitical shocks. The iShares MSCI UAE (UAE) exchange traded fund experienced a sharp increase in borrowing demand during the month as investors reassessed Gulf exposure amid rising regional risk. Although the UAE itself remained relatively stable, its economic ties to energy markets and proximity to the conflict made the ETF a commonly used vehicle for hedging regional exposure.
This pressure may have contributed to the spike in borrowing costs, with UAE鈥檚 volume-weighted average fee (VWAF) peaking at 6,700 basis points on 18 March. Such levels highlight increased demand amid constrained lendable supply, and underline how quickly geopolitical stress can feed through to securities finance pricing. The spike is likely to have reflected both directional shorts and relative-value trades, where investors sought protection against regional volatility without selling underlying cash holdings.
Broader implications for securities finance
March illustrated a familiar but powerful dynamic in securities lending: overall balances increased sharply as revenue opportunities emerged through concentrated demand and higher utilisation in select assets. Borrowing activity became increasingly targeted, focused on equities and ETFs most sensitive to geopolitical outcomes rather than broad market hedges.
For lenders, this environment presented both opportunity and risk. Elevated fees in names like BATL and UAE enhanced returns, but only where counterparty, liquidity and collateral risks were rigorously managed. For borrowers, tight supply and rising costs increased the importance of timing and position sizing, particularly as headline risk continued to dominate price action.
As the conflict in the Middle East remains unresolved, securities finance markets are likely to stay reactive. Energy producers, shipping firms and regional ETFs will remain focal points for borrowers, while balance volatility underscores how quickly geopolitical events can reshape lending behaviour. If nothing else, March has made one thing clear to all market participants: in times of conflict, securities lending becomes one of the most immediate and revealing channels through which market stress and positioning can be expressed.
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