Editor’s note
The conflict that has erupted following joint U.S.-Israeli strikes on Iran - strikes that killed Iranian Supreme Leader Ayatollah Ali Khamenei - remains a developing geopolitical event with the potential to reshape alliances and energy dynamics for years. Its immediate consequence is an acute disruption to energy flows and global supply chains, the scale of which some market participants are only beginning to fully price in.
Market moves and immediate energy impacts
Oil benchmarks have surged this week, recording their largest weekly gains since the shock of Russia’s invasion of Ukraine in 2022. Brent crude climbed above $87 per barrel while U.S. West Texas Intermediate moved past $84, following pronounced jumps on Friday morning. Those moves amount to weekly increases in excess of 20% for Brent and more than 25% for WTI, and represent year-to-date spikes of over 40%.
The physical disruptions behind these price moves are substantial. The Strait of Hormuz - a conduit for a significant share of seaborne oil flows - has effectively been closed. Hundreds of oil tankers are stranded. Qatar has halted liquefied natural gas production. Saudi Arabia has suspended output at a key refinery. Iraq has shut crude production. Taken together, these interruptions have created a supply vacuum that markets are now scrambling to assess.
Why prices have not climbed even higher - and why market sentiment may be shifting
Given the breadth of the supply damage, one might have expected benchmark crude to be trading closer to three-digit levels. Until Friday, several asset classes showed surprisingly restrained reactions - with many prices moving less than some commentators anticipated, and in some instances moving in unexpected directions. That apparent optimism - or perhaps a bet on a rapid de-escalation - is being tested by the recent, large energy spikes.
Certain regions are demonstrably more affected than others. Asian refiners, which obtain nearly 60% of their crude from the Middle East, have struggled to find alternative sources. Some processing units have already throttled back operations. Jet fuel in Asia jumped more than 70% on Wednesday to a record high. European gas benchmarks have also moved markedly higher. The regional concentration of supply dependence helps explain why market reactions have been uneven across geographies and asset types.
Policy responses and political commentary
The U.S. administration’s public statements and policy moves have been mixed. In reference to rising gasoline prices, President Donald Trump said on Thursday: "They'll drop very rapidly when this is over, and if they rise, they rise." At the same time, the U.S. has temporarily loosened restrictions on Indian purchases of Russian oil to relieve pressure on India’s refiners. Treasury officials reportedly considered but have for now ruled out intervention in the oil futures markets as a mechanism to tamp down prices.
Separately, the president said earlier in the week that the U.S. would offer insurance coverage and navy escorts to help reopen the blocked Strait of Hormuz. Observers in markets have expressed skepticism, suggesting such a plan may be too little, too late to prevent near-term dislocations given the scale and immediacy of the disruptions.
Broader market response - equities, currencies, rates and safe havens
Asset-class responses have varied considerably. Asian equity markets - home to many countries heavily dependent on Middle Eastern energy - have been hit hardest. South Korea’s Kospi, which had been among the best-performing indexes in the opening months of the year, was on track for its largest weekly decline in six years, around 10.5%.
European stock markets have weakened since the conflict began, though the magnitude of the move has been smaller than in Asia. U.S. equities fared relatively better, supported by the country’s position as the world’s largest energy producer and by a rebound in technology names.
The U.S. dollar strengthened during the week and was headed for an approximate 1.5% gain. While safe-haven flows likely contributed, the dollar’s rise may also reflect other market forces beyond simple risk aversion. Treasury yields climbed as concerns about inflationary pressures stemming from an energy shock offset some of the traditional flight-to-quality dynamics. Gold, typically viewed as a safe haven, rose on Friday but remained down on the week overall - a pattern that could indicate selling to cover losses elsewhere or reflect the speculative activity that contributed to bullion’s strong run in the prior year.
What to watch next
Markets face a near-term calendar that could briefly shift focus away from the conflict: the U.S. February payrolls report is due later today and could reignite concerns about technology-driven job losses tied to the rapid adoption of artificial intelligence. However, expectations are that attention will soon return to developments in the Middle East and related energy market moves.
No matter the trajectory or timing of a resolution, the conflict has the potential to change how governments and corporations think about defense planning, energy security and resource nationalism. Those issues take on an additional dimension at a time when the deployment of artificial intelligence and other advanced technologies is increasing demand for electricity and for metals and minerals.
Further reading and expert contributions
For readers seeking deeper context on how the Iran conflict is affecting commodities and financial markets, the following shorter pieces and commentaries have been highlighted by members of the markets team and subject-matter columnists:
- China’s strategic posture - An analysis arguing that China’s approach to recent U.S. attacks on Venezuela and Iran shows a distinct strategic logic that diverges from Washington’s perspective.
- Strait of Hormuz strategic importance - A U.S. congressional report setting out the history and strategic role of the Strait of Hormuz, prepared after last year’s 12-day Israel-Iran war.
- Critical metals and munitions - Commentary on how the use of munitions in the Iran war is consuming not just missiles but also critical metals necessary for their function.
- Lessons from illiquid asset markets - A paper using the boom and bust in non-fungible tokens as a case study for bubble dynamics and valuation challenges in illiquid or unique-asset markets.
- China’s five-year plan - A summary of what is in China’s latest five-year plan and how it might influence global markets and technology trends across the remainder of the decade.
On audio and video, market commentators have noted the value of daily Gulf-focused energy briefings and regular podcast editions that walk through immediate developments at pace, including an edition that provides weekly market outlooks and interviews with market analysts.
What this means for sectors and investors
The primary and most obvious impacts fall on energy markets and regions highly dependent on Middle Eastern hydrocarbons - particularly Asian refiners that source almost 60% of their crude from the region. Aviation and jet-fuel-dependent sectors face immediate cost stress given the record highs in Asian jet fuel prices. European gas markets are also under pressure.
More broadly, the potential inflationary effects of sustained energy price increases create transmission risks for bond markets and monetary policy expectations. Currency markets can be volatile as investors rotate into perceived safe assets or respond to shifting interest rate differentials. Equity markets are likely to continue to show uneven performance, with regions and sectors tied to energy supply chains and industrial inputs bearing disproportionate downside risk.
Contact and distribution
Readers interested in receiving regular morning briefings can sign up for daily newsletters. Team members have shared recommended reading, listening and viewing to help follow developments closely through the coming days and weeks.
Conclusion
The current Middle East conflict has already produced dramatic effects on energy flows and on market pricing. While some investors initially appeared to downplay the risk of prolonged disruption, recent moves in oil and gas markets suggest a recalibration is underway. The scale of the supply interruption - from a de facto closure of the Strait of Hormuz to shutdowns of LNG and refinery capacity - creates policy, market and operational questions that will reverberate across energy, transportation and financial markets until the situation stabilizes.