Concerns regarding geopolitical tensions have surged among banks and investment firms, as revealed in a recent survey conducted by the Bank of England. This increase in anxiety correlates with escalating conflicts in the Middle East.

In the latest biannual survey, an overwhelming 93 percent of firms identified geopolitical factors as the foremost threat to the UK’s financial stability, reflecting an 8 percentage point rise from the earlier survey conducted in the first half of the year.

This statistic marks the highest ever recorded in the Bank’s survey. It was carried out prior to the intensified hostilities between Israel and Iran that surged on Tuesday, highlighting the growing unease among investors concerning the potential impact of global conflicts on market stability.

Following Iran’s missile strike on Israel, accompanied by Israeli military operations in Lebanon, oil prices experienced a significant spike.

The latest report from the Financial Policy Committee of the Bank, released alongside the survey, noted that geopolitical issues were among various risks facing the UK’s financial framework.

This release was the committee’s first update since a turbulent period in early August, when global markets faced a swift sell-off in equities, fueled by concerns surrounding the US economy following disappointing labor market data. This market dip was exacerbated by the rapid unwinding of a prevalent carry trade involving the Japanese yen.

Although this disruption did not extend to fundamental financial markets, the Bank cautioned that it underscored the potential for a more severe market sell-off in the future.

The committee remarked, “Valuations across various asset classes, especially equities, rapidly returned to high levels after the episode. Even though the downturn was brief, the magnitude of the market movements in response to limited economic information showcases the vulnerabilities of market-based finance to amplify economic shocks.”

The Bank also pointed out the growing inclination among hedge funds to bet against US treasuries, which poses a risk if these funds need to rapidly reverse their positions—an event that did not materialize in August.

Currently, hedge funds have amassed short positions on treasury futures totaling a record $1 trillion, a significant increase from the previous high of $875 billion, according to the Bank’s findings. In contrast, traditional asset managers have maintained long positions in opposition to these trades.