For all the hand-wringing on Wall Street over spiraling U.S.-Iran tensions, two questions stand out: Why isn’t the sell-off worse, and just what would it take for markets to crater?

The S&P 500 erased nearly all its earlier decline to trade little changed on Monday. The yen fell from a three-month high and 10-year Treasury yields turned higher, as calm returned to global markets just days after the shock U.S. killing of an Iranian general.

While that has plunged the Middle East into a fresh crisis, some of the biggest money managers are keeping calm and carrying on. They’re eyeing pressure points like rising oil prices and falling cyclical shares before changing their allocation strategies.

Speak to someone like Sebastien Galy, and it’s likely that the sanguine tone in markets can endure. The macro strategist at Nordea Asset Management, which has over $250 billion under management, reckons stress between Iran and America will peak in the next two weeks because the Islamic nation is too weak for a protracted confrontation.

“For longer-term investors, there are no large implications aside from taking profit on their U.S. equity position,” he said. “For medium-term investors, it means increasing their long yen position as a global hedge.”

Nordea is typical of a slew of asset managers that have taken recent geopolitical developments in their stride. At Allianz Global Investors, the firm considers Middle Eastern risks easily hedged, since they’re good for oil and bad for pretty much everything else.

Right now the world can still cope with $70 per barrel oil, Allianz says, but at $80 it could start to meaningfully impact growth.

“The question will be about how long this tension is sustained,” said Neil Dwane, a global strategist at the firm, which oversees 557 billion euros ($623 billion). “We will now have to watch some of these super-cyclical stocks and the optimism people still have around 2020 economic performance.”

Oil’s Well

Over at Aberdeen Standard Investments, portfolio managers are also on alert for steeper gains in the oil price that would ripple through markets and the economy. West Texas crude has surged 3% since the new year, buoying energy stocks worldwide.

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