Financial markets opened the week under pressure as a fresh round of conflict between Iran and joint U.S.-Israeli forces raised concerns about wider instability across the Middle East. U.S. stock futures declined, oil prices jumped and gold strengthened as investors priced in the risk of interruptions to crude shipments through the Strait of Hormuz and sought traditional safe havens.
The current military moves include Israeli attacks on Hezbollah positions in Lebanon, following coordinated strikes by U.S. and Israeli forces that the reporting states resulted in the deaths of several senior Iranian figures, including Supreme Leader Ayatollah Ali Khamenei. Those strikes have prompted reprisal operations by Tehran at locations across the region, with some of the responses said to have targeted energy-producing Gulf states.
Political signals from Washington have added to the uncertainty. President Donald Trump has publicly urged opponents of Iran's government to move to overturn what he called the country's long-standing repressive system, and he told the New York Times that the current campaign could run for "four to five weeks." According to the same reporting, senior U.S. officials express skepticism that a regime change in Iran is imminent, and the president declined to outline the transition he envisions, saying he has "three very good choices" but "won't be revealing them now."
Against this backdrop, market participants were particularly attentive to the possibility of supply disruptions to oil and to the knock-on effects for inflation and growth. The immediate market moves reflect those concerns: crude traded higher on the prospect of interrupted flows, and gold gained on increased safe-haven demand.
Wall Street reaction
Several sell-side strategists and analysts weighed in with their read on the situation and the market implications. Their views, while differing on magnitude and duration, consistently flagged elevated geopolitical risk and potential pressure on energy markets and risk assets.
"We could see efforts to exacerbate the existing economic crisis in the country through strikes on oil refineries, ports or pipelines. We could also see efforts to disrupt supply chains of critical imports from Iran’s key trading partners." - Helen Belopolsky, Deutsche Bank
"The U.S. equity market was already starting to digest the escalation in the region coming into the weekend [...] While the equity market still has some things to digest in Monday’s trading, we think it’s fair to say that both the choppiness in the S&P 500 this year and the outperformance of the Energy sector were reflecting heightened geopolitical risk to some degree." - Lori Calvasina, RBC Capital Markets
"The current situation also carries much greater risk of disruption to global markets than last year’s, in our view. If the global costs escalate rapidly, we would not exclude a more rapid-than-anticipated closure of this round." - Jean-Michel Saliba, BofA Securities
"In our baseline scenario, we don’t expect a protracted conflict, limiting upside to oil to $10-$15 per barrel but tail risks are much bigger than in 2025. A persistent spike in oil prices exposes the global economy to a risk of stagflationary shock." - BofA analysts including Claudio Irigoyen and Antonio Gabriel
"U.S.-Iran escalation heightens stagflation risk, adding to [artificial intelligence]/credit concerns. Risk premia had already started to build, yet European Union/emerging market equities near highs vulnerable with unclear conflict endgame. But protracted war and oil surge not in Trump’s interest. Geopolitical driven pull backs typically short lived." - Barclays analysts including Emmanuel Cau
"At this early juncture, we do not expect this to spill into a 'boots on the ground' conflict, but risks around potential blockades of the Strait of Hormuz will remain in close focus in the coming days. We expect hostilities will remain active for at least several weeks; beyond that, U.S. capabilities to sustain the cadence of fighting will come into question." - Raymond James analysts including Ellen Ehrnrooth and Ed Mills
Implications for markets and energy
Analysts highlighted the direct link between regional military activity and energy-market volatility, noting that strikes on refinery infrastructure, ports or pipeline networks could amplify supply shocks. Several forecasters also cautioned that a prolonged disruption would raise the risk of stagflation by pushing energy costs higher while weighing on growth.
Equity market behavior so far this year - including bouts of choppiness in the S&P 500 and the relative strength of the energy sector - was cited by commentators as at least partly reflective of rising geopolitical risk. Observers also flagged heightened vulnerability for EU and emerging market equities, given valuations and unclear endgames to the conflict.
What remains uncertain
- How long the United States plans to remain actively engaged in the fighting and whether the campaign will end within the weeks suggested by public remarks.
- Whether retaliatory actions by Tehran will cause direct disruptions to oil flows, including through the Strait of Hormuz, or target energy-producing Gulf nations in ways that materially affect global supply.
- The potential scale and duration of market dislocations if oil prices experience a sustained spike, with attendant implications for inflation and global growth.
Markets will likely continue to respond to both developments on the ground and policy signals coming from Washington and regional capitals. Analysts emphasize that while short-term volatility is expected, the size of tail risks to oil and global macro outcomes has increased relative to last year.