The United States and Israel launched a sweeping strike on Iranian targets over the weekend, killing Iran’s longtime Supreme Leader, Ayatollah Ali Khamenei, and dramatically escalating tensions across the Middle East. Tehran responded with retaliatory airstrikes on US military bases across the Gulf, raising fears of a broader regional confrontation and sending shockwaves through global financial markets. As uncertainty grips the region, investors are bracing for volatility across stocks, oil, currencies, and cryptocurrencies.
Here’s what you need to know about how the escalating conflict could impact different asset classes.
Oil & Energy Markets
Since Iran is a major oil producer and lies opposite the oil-rich Arabian Peninsula across the Strait of Hormuz, controlling about 20% of global oil supply, conflict could limit oil entering the global market and push up prices.
Jorge León, Senior Vice President and Head of Geopolitical Analysis at Rystad Energy, said the net effect remains an actual loss of between 8 and 10 million barrels per day of crude oil supply, accounting for about 8% to 10% of the global total demand, as the global market that consumes around 100 million barrels per day.
Reuters predicted that Brent crude prices would respond by rising from the current baseline of $73 to about $80, based on Iran’s announcement of closing the Strait of Hormuz.
Stock Markets
Trading across Middle Eastern bourses is expected to offer the first real gauge of investor sentiment following the escalation. Airline and travel stocks are likely to face renewed pressure as flight cancellations, rerouted planes, and regional airspace closures curb demand and raise operating costs.
By contrast, defense and aerospace shares often outperform during periods of geopolitical tension, as expectations of higher military spending boost investor confidence.
Speaking to Reuters, Ryan Lemand, chief executive officer and co-founder of Neovision Wealth Management, warned that equities are likely to come under pressure if hostilities persist, as investors shift into safer assets and price in heightened geopolitical risk.
Currencies
Financial market experts confirm that escalating geopolitical tensions might lead to increased demand for the dollar, especially if this coincides with rising levels of anxiety in stock markets or oil price volatility. In such cases, global funds tend to reduce their exposure to emerging markets and high-risk currencies and return to the US dollar.
Geopolitical developments have long influenced markets across the globe, from stocks and currencies to oil and commodities. Whilethe recent U.S.–Iran tensions can cause sharp fluctuations, it’s important for investors to take a step back and view these movements in perspective. Such changes are often temporary, and maintaining a long-term outlook can help make more informed and measured investment decisions.
We Said This: Don’t Miss… Iran’s Face of Opposition: Who Is Reza Pahlavi?