The United States came close to becoming a net crude exporter last week for the first time since World War II, as exports surged to near-record levels to satisfy demand from Asia and Europe, where buyers were scrambling to replace Middle Eastern supplies disrupted by the Iran conflict. The war involving the U.S., Israel, and Iran caused an unprecedented shock to global energy markets, with threats to shipping through the Strait of Hormuz halting roughly 20% of global oil and gas flows. As a result, refiners in affected regions turned to alternative sources, significantly increasing demand for U.S. crude, though analysts note exports are nearing capacity limits.
Net U.S. crude imports dropped to just 66,000 barrels per day last week—the lowest level since records began in 2001—while exports rose to 5.2 million bpd, a seven-month high. Historically, the U.S. was last a net crude exporter in 1943. Strong export growth reflects how buyers in Europe and Asia are reaching further afield for supply, with price differences offsetting shipping costs. Countries like Greece have recently begun importing U.S. crude for the first time, and major buyers include the Netherlands, Japan, France, Germany, and South Korea. Nearly half of U.S. exports went to Europe, while Asia’s share has grown significantly.
Meanwhile, U.S. imports fell sharply, partly because domestic refineries rely on heavier crude than what the U.S. typically produces. A widening price gap—driven by a surge in Brent crude relative to West Texas Intermediate—has made U.S. oil more attractive overseas while reducing domestic demand for imports. Spot prices for crude deliveries to Europe and Africa have also hit record highs.
Despite strong demand, U.S. export growth is approaching logistical limits. Exports may average around 5.2 million bpd in April, close to the estimated maximum capacity of about 6 million bpd, constrained by pipeline infrastructure and tanker availability. Although releasing medium sour crude from strategic reserves could free up more light crude for export, higher shipping costs and limited tanker supply could dampen further growth. About 80 empty supertankers were reportedly heading to the Gulf of Mexico, likely to load crude in the coming weeks.
Oil prices declined for a second consecutive day on Wednesday as expectations grew that peace talks between the U.S. and Iran could resume, potentially restoring supply from the Middle East that has been disrupted by the closure of the Strait of Hormuz.
Brent crude slipped 0.55% to $94.27 per barrel after a sharp 4.6% drop in the previous session, while U.S. West Texas Intermediate fell 1.1% to $90.24 following an even steeper 7.9% decline earlier.
Investor sentiment improved after President Donald Trump suggested that negotiations to end the conflict involving the U.S., Israel, and Iran could restart in Pakistan within days. The earlier breakdown in talks had led Washington to impose a blockade on Iranian ports, but renewed diplomatic hopes are raising expectations that oil and fuel flows could eventually resume.
The conflict has effectively shut down the Strait of Hormuz, a crucial route for transporting crude and refined products from the Gulf to global markets, particularly in Asia and Europe. Although a ceasefire has been in place for two weeks, shipping activity remains severely limited, with vessel traffic far below pre-war levels.
On Tuesday, a U.S. warship reportedly prevented two oil tankers from departing Iran, underscoring ongoing disruptions. Analysts at the Schork Group noted that while diplomatic developments hint at easing restrictions, actual conditions on the ground remain unstable, leaving markets focused on the risk of supply disruptions rather than a full recovery.
Further tightening supply concerns, U.S. officials indicated that sanctions waivers on Iranian oil shipments will not be renewed, and a similar waiver for Russian oil has already expired.
Later in the day, attention will turn to U.S. inventory data from the Energy Information Administration. Expectations are for a modest increase in crude stockpiles, alongside declines in gasoline and distillate inventories. Meanwhile, preliminary data from the American Petroleum Institute suggested that crude inventories rose for a third straight week.
The U.S. dollar declined on Tuesday as investors moved away from the safe-haven currency and shifted toward riskier equities, supported by optimism over potential ceasefire progress between the U.S. and Iran, despite the ongoing naval blockade in the Persian Gulf.
Risk sentiment was further strengthened by a much weaker-than-expected U.S. producer inflation report, easing concerns that the Iran-related energy shock could fuel inflation—especially after a recent surge in consumer prices.
By 17:20 ET (21:20 GMT), the U.S. Dollar Index, which measures the greenback against six major currencies, had dropped 0.3% to 98.12.
The Hormuz blockade continued into its second day, even as Donald Trump signaled that potential negotiations could be on the horizon.
The blockade of the Strait of Hormuz entered its second day even as President Donald Trump highlighted the possibility of renewed negotiations.
The U.S. dollar, which had initially strengthened as a safe-haven asset following the outbreak of the Iran conflict in late February, has recently weakened amid growing optimism that tensions could ease.
This optimism increased on Tuesday after Trump told the New York Post that additional talks “could take place within the next two days” in Pakistan. According to earlier reports, the U.S. and Iran have remained in contact and made some progress toward a lasting ceasefire agreement.
Trump also stated that Iranian officials had reached out to the White House expressing interest in striking a deal, while reiterating that Iran would not be allowed to develop nuclear weapons. The U.S. is reportedly insisting that Iran halt uranium enrichment for 20 years, a key step in nuclear weapons development.
At the same time, the U.S. naval blockade of vessels entering and leaving Iranian ports continued into its second day. The U.S. Central Command said the operation involves over 10,000 personnel, more than a dozen warships, and dozens of aircraft to enforce the restrictions.
CENTCOM reported that within the first 24 hours, no ships managed to pass through the blockade, and six commercial vessels complied with U.S. directives to turn back toward ports in the Gulf of Oman.
British maritime authorities also confirmed that access has been limited for ships attempting to enter or exit Iranian ports, as well as in nearby waters including the Persian Gulf, Gulf of Oman, and parts of the Arabian Sea.
Trump noted that the blockade began on Monday after weekend ceasefire negotiations failed to produce immediate results. The move risks further disrupting already reduced oil flows through the Strait of Hormuz, a critical route that carries about one-fifth of the world’s oil supply.
U.S. producer inflation came in weaker than expected.
U.S. producer inflation came in less severe than expected, drawing significant market attention on Tuesday. The March producer price index (PPI) rose 0.5% month-on-month and 4.0% year-on-year, falling short of forecasts of 1.1% and 4.6%. Meanwhile, core PPI increased by 0.1% over the month and 3.8% compared to a year earlier.
Despite the softer-than-expected overall figures, the annual rise in headline PPI marked the largest increase since February 2023, largely driven by a sharp 8.5% monthly surge in energy prices for final demand.
Even so, the weaker headline data helped ease investor concerns.
Guy LeBas, chief fixed income strategist at Janney, noted on X that expectations had been elevated due to fears of rising energy input costs, which were not fully reflected in the data.
He added that although gas prices are clearly higher, these cost increases may take several months to filter through the economy rather than appearing all at once. This gradual pass-through could complicate monetary policy, as it may delay the Federal Reserve’s confidence that inflation pressures are not spreading beyond the energy sector.
The euro and British pound strengthened, while the yen also gained despite weak economic data.
Among major currencies, both the euro (EUR/USD) and the British pound (GBP/USD) moved higher, supported by the softer U.S. dollar. The euro rose 0.2% to $1.1795, while the pound gained 0.4% to $1.3567.
The Japanese yen also strengthened, with USD/JPY slipping 0.3% to 158.80, despite data showing Japan’s industrial production fell 2% month-on-month in February after a 4.3% increase in January.
In other markets, the Australian dollar (AUD/USD) increased 0.3% to $0.7122, even though economic indicators were weak. According to National Australia Bank, business confidence dropped sharply in March following the Iran conflict, while the Westpac–Melbourne Institute survey showed a steep decline in consumer sentiment in April.
U.S. President Donald Trump said Sunday evening that he was unconcerned about whether Iran would return to negotiations after ceasefire talks over the weekend failed to produce an agreement.
He also confirmed that the United States intends to impose a blockade on the Strait of Hormuz starting Monday morning, accusing Iran of failing to honor its commitment to reopen the vital shipping route. Speaking to reporters at Joint Base Andrews, Trump stated that the U.S. would be fine even if Iran chose not to resume talks.
His remarks followed a report indicating that several countries are attempting to restart diplomatic efforts after lengthy discussions in Islamabad ended without a deal. Despite the breakdown, sources suggested that further negotiations could take place within days, while regional governments are working with Washington to extend a fragile two-week ceasefire.
The Islamabad meeting represented the highest-level direct engagement between U.S. and Iranian officials since 1979, with 21 hours of talks concluding without progress. Vice President JD Vance said the U.S. had clearly outlined its conditions, but Iran declined to accept them.
U.S. demands reportedly included ending uranium enrichment entirely, dismantling key nuclear facilities, surrendering enriched materials, reopening the Strait of Hormuz without fees, promoting broader regional stability, and ceasing support for groups such as Hezbollah and the Houthis. Iran, however, proposed limited enrichment or reducing its stockpile, but the two sides failed to reach a compromise.
In response to Trump’s blockade announcement, Iranian Parliament Speaker Mohammad Bagher Qalibaf warned that Iran would not back down under pressure, stating that any confrontation would be met with force.
The U.S. plans to enforce the blockade on all vessels entering or leaving Iranian ports from 10 a.m. ET on April 13, covering areas along the Arabian Gulf and Gulf of Oman. It remains unclear whether U.S. allies will participate. Trump also criticized NATO for its lack of involvement and said Washington is reassessing its relationship with the alliance.
Oil prices rose on Friday amid renewed concerns over supply disruptions from Saudi Arabia and continued minimal tanker movement through the strategically vital Strait of Hormuz.
Despite the gains, crude was still on track for a weekly decline as market fears eased slightly following a fragile two-week ceasefire between the United States and Iran. At the same time, Israel indicated a possible diplomatic shift, expressing readiness to start direct negotiations with Lebanon soon.
Brent crude increased by $0.96, or 1%, to $96.88 per barrel at 0604 GMT, while West Texas Intermediate (WTI) gained $0.78, or 0.80%, reaching $98.65 per barrel.
Both benchmarks are down roughly 11% so far this week, marking their steepest weekly drop since June 2025, when earlier Israeli-U.S. strikes on Iran were paused.
According to Saudi Arabia’s state news agency SPA, citing the Ministry of Energy, attacks on key energy infrastructure have reduced the kingdom’s oil output capacity by about 600,000 barrels per day and cut throughput on the East-West Pipeline by approximately 700,000 barrels per day.
Analysts at ANZ noted that these developments have intensified concerns about further supply disruptions.
Shipping activity through the Strait of Hormuz remained below 10% of normal levels on Thursday, despite the ceasefire, as Iran asserted control by instructing vessels to stay within its territorial waters.
Although Iran and the U.S. agreed to a two-week ceasefire mediated by Pakistan, clashes reportedly continued afterward.
Experts suggest Pakistan may attempt to broker a longer-term agreement, but its ability to enforce the reopening of the waterway remains limited.
A Tehran official also told Reuters that Iran is seeking to impose transit fees on ships passing through the Strait under any peace arrangement, an idea opposed by Western governments and the U.N. shipping agency.
The conflict, which began on February 28 following U.S. and Israeli airstrikes on Iran, has effectively disrupted one of the world’s most important energy corridors.
Energy consultant John Paisie of Stratas Advisors warned that Brent crude could surge to $190 per barrel if current shipping constraints persist, though prices would be more contained if flows improve, albeit still above pre-war levels.
Mukesh Sahdev, CEO of XAnalysts, emphasized that the critical issue is not whether the Strait of Hormuz reopens, but how quickly normal oil flows can resume.
Meanwhile, JPMorgan estimated that around 50 energy infrastructure sites across the Gulf have been damaged by drone and missile attacks since the conflict began, with approximately 2.4 million barrels per day of refining capacity taken offline.
Iran has prepared its reply to the proposed ceasefire terms, according to a foreign ministry spokesperson.
Iran has outlined its positions and demands in response to recent ceasefire proposals delivered through intermediaries, a foreign ministry spokesperson said Monday, stressing that negotiations cannot proceed under ultimatums or threats of war crimes.
Spokesperson Esmaeil Baghaei noted that Tehran’s requirements—based on national interests—have already been communicated via intermediary channels, while earlier U.S. proposals, including a 15-point plan, were rejected as excessive.
He emphasized that clearly stating Iran’s legitimate demands should not be seen as compromise, but as confidence in defending its stance. Baghaei added that Iran has prepared its responses and will disclose further details in due course.
US and Iran consider a peace proposal as Trump warns of severe retaliation if the Strait remains closed.
The United States and Iran have received an outline for ending the conflict, but Tehran has refused to immediately reopen the Strait of Hormuz, even after Donald Trump warned of severe consequences if no deal is reached by Tuesday.
According to a source, the proposal follows a two-stage plan: an immediate ceasefire, followed by a broader agreement to be finalized within 15–20 days. Pakistan’s army chief, Asim Munir, has reportedly been in continuous contact with U.S. Vice President JD Vance, envoy Steve Witkoff, and Iran’s foreign minister Abbas Araqchi.
Iran, however, has rejected reopening the Strait under a temporary truce and dismissed imposed deadlines, while also expressing doubts about Washington’s commitment to a lasting ceasefire.
Earlier, Axios reported that the U.S., Iran, and regional mediators were exploring a potential 45-day ceasefire as part of a phased deal toward ending the war.
Trump, posting on Truth Social, issued a deadline of Tuesday evening, threatening further strikes on Iran’s infrastructure if the Strait remains closed.
Meanwhile, airstrikes continued across the region, more than five weeks into the conflict involving the U.S., Israel, and Iran. Tehran has responded by effectively shutting the Strait—through which about 20% of global oil and gas flows—and launching attacks on Israel, U.S. bases, and energy sites in the Gulf.
Officials in the UAE emphasized that any agreement must ensure free passage through the Strait, warning that failing to curb Iran’s nuclear and missile capabilities could lead to greater regional instability.
Despite repeated U.S. claims of weakening Iran’s military capacity, recent Iranian strikes on petrochemical facilities and vessels in Kuwait, Bahrain, and the UAE highlight its continued ability to retaliate.
The conflict has caused heavy casualties: thousands have died in Iran, including many civilians, while Israel and Lebanon have also suffered significant losses as fighting spreads, including clashes with Iran-backed Hezbollah forces.
A massive oil tanker near Dubai was struck by an Iranian attack following the latest threats from Trump.
Iran struck and set fire to a fully laden crude tanker near Dubai on Monday, as President Donald Trump warned Washington would destroy Iran’s energy infrastructure if Tehran failed to reopen the Strait of Hormuz. The targeted vessel, the Kuwait-flagged Al-Salmi, is the latest in a series of attacks on commercial shipping using missiles and drone strikes in the Gulf since U.S. and Israeli forces hit Iran on February 28.
The conflict, now a month old, has expanded across the Middle East, causing heavy casualties, disrupting energy flows, and raising fears of a global economic downturn. Oil prices briefly surged again following the attack on the tanker, which has a capacity of roughly 2 million barrels valued at over $200 million. Its owner, Kuwait Petroleum Corp, said the strike occurred early Tuesday, igniting a fire and damaging the hull, though no injuries were reported. Dubai authorities later confirmed the blaze had been contained after what they described as a drone strike.
Rising oil and fuel costs are beginning to strain U.S. households and pose a political challenge for Trump and Republicans ahead of November’s midterm elections, particularly after pledges to cut energy prices and boost domestic production. Gasoline prices in the U.S. climbed above $4 per gallon for the first time in more than three years, according to GasBuddy, as tighter global supply pushed crude above $101 per barrel.
Meanwhile, hostilities show no sign of easing, with concerns mounting over a broader regional war. Iran-aligned Houthi forces have launched missiles and drones at Israel, while Turkey reported intercepting a ballistic missile from Iran that briefly entered its airspace. Israel has carried out strikes on targets in Tehran and Hezbollah-linked sites in Beirut, with explosions reported across parts of the Iranian capital and power outages affecting some districts.
The Israeli military said four of its soldiers were killed in southern Lebanon, where recent incidents have also claimed the lives of UN peacekeepers. Iran’s military stated its latest wave of attacks targeted U.S. bases and Israeli positions across the region.
The U.S. has begun deploying thousands of troops from the 82nd Airborne Division to the Middle East, signaling potential escalation even as diplomatic efforts continue. The White House said Trump aims to secure a deal with Iran before an April 6 deadline to reopen the Strait of Hormuz, a key route for roughly one-fifth of global oil and LNG shipments.
While U.S. officials say talks are progressing, Iran has dismissed proposed terms as unrealistic, insisting it is focused on defense amid ongoing attacks. Trump reiterated both optimism for a deal and a renewed threat to destroy Iran’s energy facilities if no agreement is reached, though reports suggest he may be open to ending military operations even if the strait remains partially closed.
Oil prices later eased and equities recovered on hopes of de-escalation. Still, the administration is weighing further steps, including seeking financial contributions from Arab allies, as it requests an additional $200 billion in war funding—an effort likely to face resistance in Congress.
Oil and war fears dominate markets heading into an uncertain Q2.
Financial markets enter the second quarter on shaky ground, highly sensitive to war-related headlines. This environment raises the risk of deeper equity declines, while the sharp selloff in bonds may start to attract buyers.
Even if the conflict eases soon, investors believe lasting damage to Middle East energy infrastructure and persistently high oil prices will weigh on growth and keep inflation elevated. That combination could further pressure stocks, though if growth fears begin to outweigh inflation concerns, bonds may stage a recovery.
Seema Shah, chief global strategist at Principal Asset Management, noted that uncertainty dominates: it’s hard for investors to see beyond the constant flow of geopolitical news. While diversification into international equities remains appealing, she emphasized that U.S. exposure still plays an important role.
The Middle East conflict caps a volatile first quarter also shaped by U.S. geopolitical moves and rapid AI-driven disruption. Oil has been the standout performer, surging about 90% to above $100 a barrel, which has shaken bond markets and pushed expectations for higher interest rates.
Analysts surveyed by Reuters see oil ranging from $100 to $190 if supply disruptions persist, with an average forecast around $134. Meanwhile, prediction platform Polymarket assigns roughly a one-third chance of the war ending by mid-May and a 60% likelihood by late June.
Echoing the inflation surge of 2022, short-term borrowing costs in countries like Britain and Italy have jumped sharply, with notable moves also seen in U.S., German, and Japanese bonds. According to Societe Generale strategist Manish Kabra, the key factors for markets are how long the oil shock lasts and how central banks respond.
Since the war began, expectations for U.S. rate cuts this year have largely disappeared. In Europe and the UK, investors now anticipate rate hikes instead of easing, while hopes for monetary loosening in emerging markets have faded.
Kabra highlighted the upcoming U.S. Memorial Day weekend as a potential pressure point, as rising travel demand could intensify public and political focus on energy prices. Reflecting this backdrop, he has increased exposure to commodities in portfolios.
Bond markets have taken a hit, with yields rising sharply, but some investors see value emerging. Amundi, for instance, has added short-term eurozone government bonds and maintained positions in U.S. Treasuries, expecting central banks to look past short-term inflation spikes once the crisis stabilizes.
Similarly, Russell Investments sees bonds as more attractive than a few months ago and expects the dollar’s recent strength—up over 2% in March—to fade over time. Before the conflict, investors had been rotating away from U.S. assets, a trend that could resume if tensions ease.
Gold has slipped about 4% in March, as investors sell profitable positions to offset losses elsewhere, despite its usual role as an inflation hedge.
Equities, while initially resilient thanks to strong earnings and the tech sector, are now under pressure. The S&P 500 and Europe’s STOXX 600 have fallen roughly 9–10% from recent highs, and Japan’s Nikkei has dropped nearly 13% from its February peak.
Zurich Insurance strategist Guy Miller said his firm has shifted to an underweight position in equities as the economic outlook deteriorates. Data already points to weakening momentum, with U.S. consumer sentiment declining, German investor confidence dropping sharply, and business activity indicators hitting multi-month lows.
Although the U.S. benefits from a relatively strong economy and its status as an energy exporter, it is not immune. Prolonged high energy prices would still weigh on growth. The OECD has already warned that the global economy has been knocked off a stronger growth trajectory.
Miller concluded that this conflict differs from recent geopolitical shocks, which had limited market impact—this time, the implications for earnings, margins, and valuations are far more significant.
Gold prices edged up slightly as attention remains on the escalating Iran conflict.
Gold edged higher in Asian trading on Monday, recovering modestly after a volatile week, as investors continued to watch the risk of escalation in the U.S.–Israel conflict with Iran.
Spot gold gained 0.4% to $4,509.51 an ounce, with futures rising similarly to $4,537.40. Prices had swung sharply last week, dropping to around $4,000 before rebounding close to $4,500 by Friday.
Other precious metals were mixed, with silver slipping 0.9% while platinum advanced 1.8%.
Analysts at OCBC said the recent rebound in gold appears largely technical, following a steep decline of about 20% since the conflict began. While bearish pressure is easing and momentum indicators are improving, they cautioned that the recovery may struggle to hold unless prices break above key resistance levels at $4,624, $4,670, and $4,850 per ounce.
They also warned that persistently high energy prices could keep inflation elevated, potentially pushing Treasury yields higher and creating a less favorable environment for gold in the near term.
Meanwhile, geopolitical tensions remained high after Iran-backed Houthi forces in Yemen launched attacks on Israel over the weekend, raising fears of a broader conflict. Iran signaled readiness for a possible U.S. ground invasion, amid reports that Washington is deploying additional troops to the Middle East.
U.S. President Donald Trump said negotiations with Iran were progressing and a deal could be near, though he provided no clear timeline and warned that further strikes on Tehran remain possible. He also recently extended a deadline for potential attacks on Iran’s energy infrastructure into early April.
Oil prices jumped above $115 per barrel after Yemen’s Houthi forces launched an attack on Israel.
Oil prices surged in early Monday trading after Yemen’s Houthi group launched attacks on Israel, raising fears of a wider Middle East conflict.
Brent crude jumped 2.2% to $115.08 a barrel, after briefly spiking as high as $116.43.
The Iran-backed Houthis said they had fired multiple missiles at Israel and warned of further strikes, heightening concerns about escalation—especially given their ability to target vessels in the Red Sea.
Tensions remained elevated as Israeli forces struck targets in Tehran, while the U.S. deployed 3,500 troops to the region aboard the USS Tripoli. Iran also signaled readiness for a potential U.S. ground operation.
Oil prices have rallied sharply in March, with Brent up nearly 60%, driven by severe supply disruptions. Iran’s effective blockade of the Strait of Hormuz—a route carrying about 20% of global oil supply—has intensified market fears.
While Pakistan has offered to host talks between Washington and Tehran following a U.S. ceasefire proposal, Iran has largely rejected direct negotiations and accused the U.S. of preparing for a ground invasion.
Donald Trump said the United States and Iran have been engaging both directly and through intermediaries, describing Iran’s new leadership as “very reasonable,” even as additional U.S. troops deployed to the region and Tehran warned it would not accept humiliation.
His comments came after Pakistan announced it was preparing to host potential talks between Washington and Tehran aimed at ending the month-long conflict. Trump expressed confidence a deal could be reached, though he acknowledged uncertainty.
He also suggested that recent strikes, including one that killed Ali Khamenei, had effectively resulted in regime change, noting that the new leadership appears more pragmatic.
The conflict, which began with an Israeli strike on February 28, has spread across the Middle East, causing heavy casualties, disrupting global energy supplies, and weighing on the world economy.
Pakistan’s Foreign Minister Ishaq Dar said regional discussions had focused on ending the war and possibly hosting U.S.-Iran negotiations in Islamabad, though it remains unclear if both sides will attend.
Meanwhile, Iran’s parliamentary speaker Mohammad Baqer Qalibaf accused the U.S. of signaling negotiations while preparing for a potential ground invasion, warning that Iran would resist any attempt at forced submission.
The Pentagon has sent thousands of additional troops to the region, giving Washington the option of launching a ground offensive, while Israel has indicated it will continue strikes against Iranian military targets regardless of diplomatic efforts.
Recent Israeli airstrikes have targeted missile facilities and infrastructure across Iran, while Iranian retaliation has struck sites in Israel. The conflict has also disrupted key shipping routes, including the Strait of Hormuz, driving oil prices sharply higher and rattling global markets.
As tensions escalate, the arrival of more U.S. forces and the possibility of broader regional involvement—including attacks linked to Yemen’s Houthi forces—raise the risk of a prolonged and wider war.
The U.S. dollar rose on Friday, positioning itself for its strongest monthly performance since July, as investors turned to the currency as a safe haven amid uncertainty surrounding the Iran conflict.
By 17:28 ET (21:28 GMT), the U.S. Dollar Index—which measures the greenback against six major currencies—had increased by 0.3% to 100.18.
The U.S. dollar is on track for its strongest monthly performance since July 2025.
The U.S. dollar is on track for its strongest monthly gain since July 2025, with the Dollar Index rising 2.6% in March—its biggest increase since a 3.2% climb last July.
This strength has been driven by growing safe-haven demand amid geopolitical tensions, along with expectations that interest rates will stay higher for longer due to inflation pressures from rising energy prices. Markets have largely abandoned bets on Federal Reserve rate cuts this year, and are even starting to price in potential rate hikes.
At the same time, investors have been selling off bonds, pushing U.S. Treasury yields sharply higher, with the 10-year yield reaching its highest level since July.
According to Macquarie strategist Thierry Wizman, while safe-haven flows have played a role, the dollar’s strength is more fundamentally driven—particularly by the U.S.’s lower reliance on imported oil compared to other regions. He noted that unlike past periods of uncertainty, the current environment may have a less severe impact on U.S. incomes, helping support the dollar despite global economic disruptions.
Trump pushed back a critical deadline, while Iran reported that its infrastructure had been struck.
Risk assets fell sharply on Friday as tensions in the Middle East intensified, while oil prices surged past $110 per barrel. Although President Donald Trump extended a deadline for Iran to reopen the Strait of Hormuz, the move did little to reassure markets.
Iran’s foreign minister, Abbas Araghchi, stated that Israeli strikes had already hit key infrastructure, including steel plants, a power station, and civilian nuclear facilities, calling the attacks inconsistent with Trump’s extended timeline.
Earlier, Trump had warned Iran to unblock the strategic waterway—through which about 20% of global oil supply passes—or face U.S. strikes on its energy infrastructure. He later delayed potential action until Friday following what he described as “very strong” talks with Iran. However, Tehran has denied that any negotiations with Washington are taking place.
The euro and British pound weakened, while the yen surged to 160 against the dollar.
The euro and British pound weakened against the U.S. dollar, with EUR/USD falling 0.2% to 1.1510 and GBP/USD dropping 0.5% to 1.3259, as Europe continues to face energy supply disruptions—especially in natural gas—linked to the Iran conflict.
G7 diplomats met in France, where U.S. Secretary of State Marco Rubio highlighted the Strait of Hormuz as a key issue, warning that any attempt by Iran to impose tolls on the passage would be unacceptable.
Meanwhile, the Japanese yen slid further, with USD/JPY rising 0.4% to 160.25. Reports suggest that breaching the 160 level could prompt intervention by Japanese authorities. The Australian dollar, often seen as a risk-sensitive currency, remained broadly stable after earlier falling to a two-month low.
Analysts at MUFG expect the U.S.–Iran conflict to be relatively short-lived, with geopolitical risk premiums eventually easing. However, they caution that a prolonged conflict could keep energy prices elevated, putting additional pressure on currencies in Asia that rely heavily on energy imports—particularly the South Korean won and the Japanese yen.
The U.S. dollar rose slightly on Wednesday, rebounding from earlier losses as hopes for Middle East de-escalation faded after Iran rejected a U.S. ceasefire proposal.
At 17:45 ET (21:45 GMT), the U.S. Dollar Index—tracking the greenback against six major currencies—gained 0.2% to 99.62.
The United States has put forward a ceasefire proposal.
While there is some optimism that Washington and Tehran may be exploring ways to end the conflict, markets remain cautious as both sides continue to offer conflicting accounts of how negotiations are progressing.
Reportedly eager to find an exit from the war, President Donald Trump has backed a U.S. proposal outlining a 15-point peace plan to Iran. The plan not only calls for Tehran to dismantle its primary nuclear facilities but also urges the reopening of the Strait of Hormuz — a critical shipping route south of Iran that has been largely shut to tanker traffic in recent weeks. This disruption has pushed energy prices higher and raised concerns about global inflation.
According to Thierry Wizman, global FX and rates strategist at Macquarie, investor optimism was revived by news that the U.S. had presented concrete terms to Iran. However, he cautioned that a ceasefire is unlikely in the near term. Instead, the U.S. may escalate military pressure over the next couple of weeks to push Iran toward meaningful concessions, with major combat potentially reaching a turning point by mid-April. He described the situation as entering a third phase — one defined by both negotiation and conflict, rather than purely one or the other.
Wizman added that the possibility of renewed negotiations signals a more critical stage in the U.S.-Iran conflict. Initially driven by diplomacy, then by direct confrontation, the situation may now evolve into a blend of both. While this dual-track approach could help stabilize market sentiment compared to outright war, it also carries the risk of sharper downside if it fails to deliver lasting stability and security.
Iran has pushed back against the proposal.
On Wednesday morning, the Fars News Agency reported that Tehran does not accept a ceasefire, emphasizing that it seeks a complete end to the conflict rather than a temporary halt in fighting.
Later, Press TV stated that Iran would not allow the United States to dictate when the war should end, citing a senior political figure. According to the report, the official outlined five key demands from Tehran, including a full cessation of attacks as well as international recognition and guarantees of Iran’s authority over the Strait of Hormuz.
However, Axios later cited a U.S. official saying Washington had not received any formal communication from Iran rejecting the ceasefire plan.
Iranian Foreign Minister Abbas Araghchi also denied that negotiations with the U.S. were taking place, according to Reuters. While acknowledging that messages were being passed through intermediaries, he stressed that such exchanges should not be interpreted as formal talks.
In the energy market, Brent crude — the global benchmark — briefly dipped below $100 per barrel on Wednesday, though it remains significantly higher than the roughly $70 level seen before the conflict began in late February.
Rising concerns over energy-driven inflation have strengthened expectations that central banks worldwide may need to adopt a more hawkish policy stance. In Germany, ECB President Christine Lagarde indicated that further tightening could be justified even if the inflation spike proves temporary.
The euro and yen edged higher on Wednesday, while sterling drew attention following the latest UK inflation figures.
The euro saw a slight uptick, with EUR/USD hovering around 1.1560. At the same time, the Japanese yen strengthened, pushing USD/JPY down to 159.33.
Sterling remained largely flat, trading near 1.3365 against the dollar, but came into focus after the release of new consumer inflation data. The UK’s consumer price index rose 3% year-on-year in March, unchanged from February. Notably, the data does not yet reflect the impact of rising oil prices triggered by the Middle East conflict.
According to Sanjay Raja, chief UK economist at Deutsche Bank, the UK’s disinflation trend may be approaching a pause. He noted that February’s inflation reading is already outdated, as households and businesses are beginning to feel the effects of the Iran conflict, particularly through higher fuel costs. Further increases in fuel prices are expected, and even if the conflict ends quickly, energy bills — including electricity and gas — could still climb by double digits over the summer.
Bitcoin surged on Monday as investor appetite for risk improved amid hopes of easing tensions in the Middle East.
Donald Trump highlighted “productive” discussions with Iran and announced that the U.S. would delay planned strikes on Iranian energy facilities for five days. Following these remarks, Bitcoin climbed 4.5% to $70,947.6 after previously trading lower.
However, Iran’s Fars News Agency denied any form of communication with the U.S., stating that no direct or indirect talks had taken place. The report also suggested that Washington’s decision to postpone strikes came after Iran warned it would retaliate by targeting energy infrastructure across West Asia.
Donald Trump highlights “productive” talks, raising hopes for a potential end to the conflict.
Donald Trump claimed that the U.S. had held “productive” discussions with Iran, suggesting a potential path toward ending the conflict. In a social media post, he said both sides had made progress toward a “complete and total resolution” and announced a five-day delay in planned strikes on Iran’s energy infrastructure.
However, officials in Tehran denied that any talks had taken place. Iran’s foreign ministry reiterated that its stance on the Strait of Hormuz and the conditions for ending the conflict remain unchanged.
Reports from The Wall Street Journal, citing Fars News Agency, also stated there had been no direct or indirect communication between the two sides. According to Fars, the U.S. decision to hold off on strikes came after Iran warned it would retaliate by targeting similar infrastructure across West Asia.
Trump later told reporters that the discussions had gone very well and that there was a strong possibility of reaching an agreement, though he emphasized that no outcome was guaranteed.
Meanwhile, Justin Wolfers from the University of Michigan highlighted the uncertainty facing financial markets—whether to trust U.S. statements about negotiations or Iran’s denials.
Earlier, Trump had warned that Iran must reopen the Strait of Hormuz within 48 hours or face military action. In response, Tehran threatened to shut down the waterway entirely and target key energy and water infrastructure in Gulf countries if attacked.
Bitcoin outperforms gold as geopolitical tensions and interest rate concerns weigh more heavily on the precious metal.
Bitcoin has outperformed gold and other precious metals this month since the conflict began, with bullion attracting limited demand despite rising geopolitical tensions.
Bitcoin has gained nearly 6% in March, while spot gold has dropped around 17%. The precious metal came under pressure after hitting a record high in late January, triggering profit-taking and a broader unwinding of long positions.
Even with the escalation involving Iran, gold failed to see strong safe-haven inflows, as concerns over persistent inflation and higher interest rates outweighed its appeal. In contrast, Bitcoin benefited from improving U.S. regulatory sentiment and renewed buying interest after previously falling as much as 50% from its October peak.
However, on a year-to-date basis, gold still leads, rising about 2% compared to Bitcoin’s roughly 19% decline.
Across the broader crypto market, gains followed Bitcoin’s move higher after Donald Trump’s announcement. Ethereum climbed 5.6%, while XRP rose 4.3%. Other major tokens including BNB, Solana, and Cardano also posted gains, alongside memecoins like Dogecoin.
The U.S. dollar declined on Monday, giving up earlier gains as investors reacted to President Donald Trump’s remarks about “productive” discussions with Iran. By 17:15 ET (21:15 GMT), the dollar index—measuring the greenback against six major currencies—had dropped 0.5% to 99.13.
Optimism over easing tensions spreads across global markets.
Hopes of easing tensions spread across global markets. Wall Street posted strong gains, while oil prices plunged after Trump decided to delay missile strikes on key Iranian infrastructure, citing progress in talks with Tehran. In a social media update, he said discussions aimed at achieving a “complete and total resolution” to the conflict.
Trump noted that, based on the positive tone of the talks—which are expected to continue—he had ordered the Pentagon to postpone any military action against Iranian energy facilities for five days. However, Iranian state media denied that any direct negotiations had taken place with the U.S. Officials in Tehran maintained their stance on the Strait of Hormuz and reiterated that their conditions for ending the conflict remain unchanged.
Reports from the The Wall Street Journal, citing Iran’s Fars news agency, also indicated there had been no communication between the two sides. According to Fars, the U.S. decision to step back from targeting Iranian energy sites followed warnings from Iran about potential retaliation across West Asia.
Speaking to reporters, Trump said the talks had gone “very well” and suggested there was a serious chance of reaching an agreement, though he stopped short of making any guarantees.
Market analysts expressed uncertainty over how to interpret the situation. David Morrison from Trade Nation noted that the developments add volatility to trading, especially given the high stakes involved. He also suggested that the lack of clearly defined war objectives may allow the U.S. to step back while claiming success—though Iran has framed the move as a retreat following its warnings.
The euro, pound, and yen showed little movement.
In currency markets, the euro and pound showed little movement, while the yen remained steady. European markets ended higher, supported by optimism that reduced tensions could stabilize energy supplies. This is particularly important for Europe, which depends heavily on oil and gas from the Middle East.
Disruptions to the Strait of Hormuz—through which about 20% of global energy supply passes—as well as attacks on gas infrastructure in Qatar, have recently weighed on the region. Meanwhile, Japan’s currency has also been pressured by rising oil prices, as the country relies on crude imports passing through the same route.
The U.S. President, Donald Trump, intensified his administration’s military stance on Saturday by giving Tehran a 48-hour deadline to fully reopen the Strait of Hormuz. In a social media post, he warned that if Iran failed to eliminate threats to the vital waterway, it would face the “obliteration” of its power infrastructure, with a particular focus on its largest power plants.
This move comes after weeks of maritime disruption that have effectively brought shipping to a standstill in the world’s most critical oil chokepoint, where roughly 20% of global crude oil and liquefied natural gas (LNG) typically passes.
Strategic infrastructure in focus
The latest warning from Donald Trump signals a shift in targeting strategy, expanding beyond military assets to include Iran’s domestic power grid in an effort to maximize pressure on its leadership.
Trump also pushed back against claims that the U.S. has fallen short of its initial objectives, asserting that the campaign is “weeks ahead of schedule” and has already significantly weakened Iran’s naval and air capabilities.
While the White House has indicated that Tehran may be open to negotiations, the President has publicly ruled out talks for now, instead insisting on the unconditional reopening of the Strait of Hormuz.
A strike on Iran’s power plants would likely have consequences far beyond energy shortages at home. Such a move would point to a broader disruption of regional industrial capacity, making any diplomatic resolution increasingly difficult to achieve.
The “Hormuz chokepoint” and market volatility
The effective shutdown of the Strait of Hormuz has unleashed a major shock to global energy supply, as tanker movements have nearly halted and key Persian Gulf producers have been forced to cut output.
The 48-hour deadline set by Donald Trump has injected fresh urgency into global commodities markets. If no change occurs before it expires, a potential shift toward targeting civilian energy infrastructure could significantly alter the region’s risk premium for the rest of 2026.
On Saturday, Israel struck targets in Iran and Beirut as the U.S. sent thousands more Marines to the Middle East. President Donald Trump criticized NATO allies as “cowards” for hesitating to help reopen the Strait of Hormuz.
Since the U.S. and Israel began attacks on Iran on February 28, over 2,000 people have died, and Americans are growing concerned the conflict could expand further in its fourth week. Israel said it targeted Hezbollah in Beirut while intensifying airstrikes against Iran-backed militias, marking the deadliest spillover since Hezbollah fired on Israel on March 2. Israel also launched new attacks on Tehran.
Key energy infrastructure in Iran and the Gulf has been hit, pushing oil prices up 50%, prompting companies like United Airlines to cut planned flights by 5% due to expected prolonged high fuel costs. The Strait of Hormuz, critical for a fifth of global oil and LNG, is largely closed to shipping. Allies have pledged “appropriate efforts” to ensure safe passage, but Germany and France insist fighting must stop first. Iran indicated it will allow Japanese-related vessels to pass.
To ease supply, the U.S. will temporarily waive sanctions to sell 140 million barrels of Iranian oil stranded by the conflict. In Beirut, Israel issued evacuation warnings before its attacks; over 1,000 people have been killed and more than a million displaced.
Israel launched multiple airstrikes on Tehran and central Iran, while Iran fired missiles in retaliation. As Muslims celebrated Eid al-Fitr and Iranians observed Nowruz, Iran’s Supreme Leader Mojtaba Khamenei praised unity and resistance, raising questions about his condition following the death of his father, Ayatollah Ali Khamenei, in the early days of the war.
The U.S. plans to deploy 2,500 Marines with the amphibious ship Boxer, though the mission remains unclear. Polls show nearly two-thirds of Americans expect a large-scale U.S. ground war, yet only 7% support it. No decision has been made on deploying troops into Iran, though potential targets could include Iran’s coast or Kharg Island oil facilities. Trump has said the U.S. is close to achieving its goals of weakening Iran’s military and halting its nuclear ambitions and may scale back military operations.
Buying oil in Asia or jet fuel in Europe right now comes at record prices. Physical markets—where oil is traded as cargo on ships, railcars, or in storage—have surged faster than futures markets, as refiners and traders scramble to fill the massive supply gap caused by the U.S.-Israeli conflict with Iran.
The disruption, triggered by attacks on oil and gas facilities across the Middle East, is the largest ever in global energy, with Iran restricting traffic through the Strait of Hormuz, a key route for 20% of the world’s oil. Dennis Kissler of BOK Financial warned that even if the strait reopens, logistics challenges will delay a supply recovery.
Oil, gas, and refined products are vital for transport, shipping, and manufacturing, so supply shocks can heavily impact economies and demand for months or even years. Gulf production cuts and export halts have removed roughly 12 million barrels per day—about 12% of global daily demand—which are hard to replace, according to Petro-Logistics.
Physical Market Spike While futures prices have risen steadily since late February, physical cargo prices have surged even more. Brent crude briefly hit $119 per barrel, later settling near $109, while Middle East Dubai crude reached a record $166.80. Goldman Sachs predicts Brent could surpass its 2008 peak of $147.50 if outages continue. European and African crude cargoes hit $120, and even previously discounted Russian barrels now exceed $100.
The Mediterranean market, calm until early this week, has risen as expectations for a quick Hormuz reopening fade. David Jorbenaze of ICIS noted that spot price differentials reveal a much tighter market than headline prices suggest.
Seeking Sour Crude Refiners are turning to substitutes for Middle Eastern medium-density, high-sulphur “sour” crude. Russian Urals crude, long discounted due to sanctions, recently traded above Brent in India for the first time. Norwegian Johan Sverdrup crude reached an $11.30 premium to Brent. U.S. crude prices rose, with Mars Sour in the Gulf of Mexico hitting $107.53, about $6 above U.S. crude, reflecting its similarity to Middle Eastern oil.
Transport fuels have climbed even higher: European jet fuel hit around $220 per barrel, diesel exceeded $200, and Asian gasoil margins topped $60 per barrel. Measures such as the IEA’s release of 400 million strategic barrels and U.S. sanction waivers for Russian oil may not suffice. As Jorbenaze emphasized, “The market ultimately runs on barrels moving, not barrels being announced.”
Oil slips as the U.S. and allies move to ease supply constraints and reopen the Strait of Hormuz.
Oil prices dipped on Friday as European nations and Japan offered to help secure safe shipping through the Strait of Hormuz, while the U.S. outlined measures to boost supply.
U.S. Treasury Secretary Scott Bessent indicated sanctions on Iranian oil stuck on tankers could soon be lifted, and further releases from the U.S. Strategic Petroleum Reserve were possible. Brent fell $1.36 (1.3%) to $107.29 a barrel, and West Texas Intermediate (WTI) dropped $1.92 (2.0%) to $94.22.
Despite Friday’s decline, Brent is on track for a nearly 4% weekly gain after Iran targeted Gulf energy facilities, forcing production cuts. WTI, however, is set for its first weekly drop in five weeks, down more than 4%.
Markets eased some “war premiums” as world leaders signaled restraint, though analysts warn that full recovery of tanker logistics through Hormuz could take time. Any new attacks or disruptions could push prices higher, while diplomatic engagement may limit spikes and unwind the war premium.
Britain, France, Germany, Italy, the Netherlands, and Japan issued a joint statement offering assistance to ensure safe passage through Hormuz, which handles 20% of global oil and LNG flows.
U.S. President Donald Trump reportedly told Israeli Prime Minister Netanyahu not to strike Iranian energy facilities again. Meanwhile, North Dakota plans to increase crude output as wells restart and winter restrictions lift, though the pace will depend on oil prices and existing budgets.
Trump is expected to pressure Japan to support the Iran conflict during a White House meeting.
Donald Trump is expected to use a White House meeting with Japan’s prime minister, Sanae Takaichi, to seek support for the war against Iran, putting Tokyo in a difficult position as it weighs how much assistance it can offer.
Although Trump has criticized allies for their limited backing of the U.S.-Israeli campaign—while also claiming the U.S. does not need help—he is still urging partners to contribute naval forces to clear mines and protect tankers in the Strait of Hormuz, which has been largely disrupted during the conflict.
The visit, originally intended to reinforce long-standing U.S.-Japan ties, has become more complicated. While Takaichi has advocated for a stronger military posture at home, public opposition to the Iran war has so far prevented Japan from committing to operations in the Gulf.
Meanwhile, other U.S. allies, including Germany, Italy, and Spain, have declined to join any mission in the region, frustrating Trump. Takaichi has stated that Japan has not received a formal request but is reviewing what actions might be possible within constitutional limits.
Analysts note the meeting could prove challenging for Takaichi, who had hoped to influence Trump’s approach to Asia policy—particularly regarding China—but may instead have to respond to immediate demands related to the Middle East.
Japan is also preparing for potential U.S. requests to help produce or co-develop missiles to replenish American stockpiles depleted by conflicts in Iran and Ukraine. At the same time, Tokyo’s diplomatic ties with Iran could offer a channel for mediation, though past efforts have failed.
In addition, Takaichi is expected to express Japan’s intention to join the “Golden Dome” missile defense initiative and announce new investments in the U.S., potentially including tens of billions of dollars in sectors such as energy and critical minerals, building on earlier commitments tied to easing trade tensions.
Oil prices climb after Iran launches attacks on energy infrastructure across the Middle East.
Oil prices climbed on Thursday, with Brent crude surging by as much as $5 per barrel after Iran launched attacks on energy infrastructure across the Middle East in response to a strike on the South Pars gas field—marking a significant escalation in its conflict with the United States and Israel. By 0400 GMT, Brent futures had gained $4.66, or 4.3%, to $112.04 a barrel, after earlier peaking at $112.86. Meanwhile, U.S. West Texas Intermediate (WTI) rose 96 cents, or 1%, to $97.28, having previously jumped more than $3. Brent had already advanced 3.8% on Wednesday, while WTI ended nearly unchanged.
WTI has been trading at its widest discount to Brent in over a decade, driven by releases from U.S. strategic reserves and elevated shipping costs, while renewed strikes on Middle Eastern energy assets have lent additional support to Brent. Analysts noted that the intensifying conflict—targeted attacks on oil infrastructure and the loss of Iranian leadership—could lead to prolonged supply disruptions. They also pointed to the U.S. Federal Reserve’s decision to hold interest rates steady, accompanied by a hawkish outlook, as another factor heightening market concerns amid wartime conditions.
Further escalating tensions, QatarEnergy reported significant damage to its Ras Laffan LNG hub following Iranian missile strikes, while Saudi Arabia said it intercepted ballistic missiles and a drone targeting its gas facilities. Iran had issued evacuation warnings ahead of strikes on oil sites in Saudi Arabia, the UAE, and Qatar, retaliating for earlier attacks on its own facilities in South Pars and Asaluyeh.
South Pars, part of the world’s largest natural gas field shared between Iran and Qatar, was hit in an attack attributed to Israel, though U.S. and Qatari involvement was denied by President Donald Trump. He warned that the U.S. would respond if Iran targeted Qatar and said Israel would refrain from further strikes unless provoked.
Market analysts expect oil prices to remain elevated as tensions show no signs of easing and the Strait of Hormuz remains at risk of disruption. Reports also suggest the U.S. is considering deploying additional troops to the region, with options including securing tanker routes through the Strait—potentially involving both naval and air forces, and possibly ground troops if necessary.
Oil prices declined during Wednesday’s Asian session, pulling back from recent gains after Iraq and the Kurdistan Regional Government agreed to restart crude exports via Turkey’s Ceyhan terminal.
The agreement helped ease some concerns over supply disruptions stemming from the U.S.-Israel conflict with Iran. However, Brent crude remained above $100 per barrel, as the war entered its third week with little indication of de-escalation.
Markets also stayed cautious ahead of the Federal Reserve’s policy decision later in the day, amid worries that persistent inflation—fueled in part by higher oil prices linked to the Iran conflict—could prompt a more hawkish stance.
By 00:18 ET (04:18 GMT), Brent futures had dropped 2.3% to $101.05 per barrel, while West Texas Intermediate (WTI) crude fell 3.3% to $93.03 per barrel.
WTI faced additional pressure after data from the American Petroleum Institute showed U.S. crude inventories rose by 6.6 million barrels last week, defying expectations of a 0.6 million barrel draw. This data often signals a similar trend in official government figures, due later Wednesday.
On Tuesday, Iraq and Kurdish authorities finalized a deal to resume oil shipments to Turkey’s Ceyhan hub starting Wednesday. The move comes as major oil producers seek alternative export routes beyond the Strait of Hormuz, especially after Iran effectively blocked the critical passage earlier this month.
Iraq had reportedly aimed to export at least 100,000 barrels per day through Ceyhan, after shutting in around 70% of its production due to the conflict. Still, the volumes from Ceyhan are expected to cover only a small portion of the supply gap caused by disruptions in Hormuz.
Oil prices also eased after reports that the United Arab Emirates may support a U.S.-led initiative to secure shipping through the Strait of Hormuz. Iran had largely halted traffic through the strait—which handles roughly 20% of global oil supply—in retaliation for U.S. and Israeli strikes.
The UAE could become the first country to back Washington’s efforts, though most allies have so far declined to participate. Meanwhile, tensions remain high, with Iran escalating attacks on vessels near Hormuz following strikes on a key export facility. Reports also indicated that Iranian security chief Ali Larijani was killed in an Israeli strike, raising the risk of further retaliation.
Despite the pullback, oil prices remain supported by ongoing supply concerns. Brent has surged more than 40% since the conflict began in late February. Analysts at OCBC expect crude prices to stay above $100 per barrel through at least mid-2026, citing the lack of clear prospects for easing tensions.
Oil prices to remain above $100/bbl
Oil prices are expected to stay above $100 per barrel in the near term, as the U.S.-Iran conflict shows little indication of easing, according to analysts at OCBC.
The bank noted that with the conflict now in its third week and no meaningful diplomatic progress, crude flows through the Strait of Hormuz remain heavily restricted, keeping global supply tight.
OCBC has revised its outlook, projecting Brent crude to hover around $100 per barrel until mid-2026—well above its earlier estimate of roughly $70—before gradually declining toward $70 by early 2027 as disruptions ease.
Analysts warned that prolonged shipping disruptions are forcing Gulf producers to cut output, increasing the likelihood that short-term supply issues could turn into more sustained losses.
Tanker activity in the Strait of Hormuz has dropped sharply due to security concerns, effectively disrupting a crucial route responsible for about 20% of global oil consumption.
Although some shipments have cautiously resumed following Iranian inspections and potential stockpile releases from the International Energy Agency, overall volumes remain significantly below normal.
OCBC added that mitigation efforts—such as rerouting through alternative pipelines, tapping strategic reserves, and ongoing Iranian exports—could replace up to 10 million barrels per day. However, this would still leave a notable supply shortfall if disruptions persist.
The bank concluded that oil markets are nearing a “moderately severe” supply shock scenario, with risks tilted toward further price increases if geopolitical tensions continue.
Oil jumps more than 2% as markets assess supply threats from the Iran conflict.
Oil prices rebounded over 2% early Tuesday, recovering part of the previous session’s losses as supply concerns intensified amid major disruptions in the Strait of Hormuz.
Brent crude climbed to around $102.69 a barrel, while WTI rose to about $95.92. The gains follow a sharp selloff in the prior session, when prices dropped after some tankers managed to pass through the key shipping route.
The Strait of Hormuz—responsible for roughly 20% of global oil and LNG trade—has been largely disrupted by the ongoing US-Israel conflict with Iran, now in its third week, heightening fears of supply shortages, rising energy costs, and persistent inflation.
Tensions remain elevated as several US allies declined calls to deploy naval escorts for tankers, while risks of further attacks on shipping continue to threaten stability in the region. Iran has also sought the release of seized Indian tankers as part of efforts to secure safe passage through the Gulf.
The disruption has already forced the UAE to cut oil output by more than half, tightening global supply. In response to rising energy costs, the International Energy Agency is considering additional releases from strategic reserves beyond the 400 million barrels already planned.
Meanwhile, major banks have raised their oil price forecasts, reflecting the risk of prolonged supply disruptions. Scenarios range from a quick resolution that pushes prices back toward $70 to an extended conflict that could drive Brent toward $85 or higher.
Security sources report that drones and rockets were launched at the US embassy in Baghdad.
Several rockets and at least five drones targeted the US embassy in Baghdad early Tuesday, in what Iraqi security sources described as the most severe attack since the US–Israel conflict with Iran began.
Witnesses saw multiple drones heading toward the compound, with air defenses intercepting some, while at least one hit inside the embassy, sparking fire and smoke. Blasts were also reported across the city.
The strike reflects escalating retaliation by Iran-backed militias against US interests in Iraq following the war that started on February 28.
In response, Iraqi forces have increased security across Baghdad, shutting down the fortified Green Zone that houses key government buildings and diplomatic missions.
U.S. Strategy I: Roaring 2020s vs. Stagflating 1970s Redux
In last Tuesday’s QuickTakes, reacting to the latest Middle East conflict, we noted that although markets were already due for a pullback because of excessive bullish sentiment, the escalation increased the likelihood of a deeper correction. We suggested the market could fall around 10% from its peak, potentially reaching 15% if Iran’s Islamic Revolutionary Guard Corps (IRGC) succeeded in sustaining a blockade of the Strait of Hormuz using drones and fast boats.
Since then, much of Iran’s conventional naval capability has reportedly been destroyed. However, as long as the IRGC retains drone capabilities, the strategic waterway could remain effectively constrained. Donald Trump has authorized the United States Navy to escort vessels through the Strait, though the operation may take time to deploy and may not fully eliminate the threat of Iranian drone attacks.
Media reports over the weekend underscored those risks. According to the New York Post, an Iranian suicide drone struck a commercial oil tanker in the Strait, setting it ablaze while U.S. naval protection efforts for shipping lanes could still be weeks away.
Limits of Air Power
Military historians have long debated whether air power alone can decisively win wars. Most conclude it rarely achieves lasting victory by itself. While air strikes can destroy infrastructure, supply chains, and concentrated forces, they cannot control territory, conduct searches, or administer local governance. Nor can they fully eliminate dispersed threats such as drones.
Over the weekend, President Trump declined to rule out deploying ground forces, though he dismissed the idea of using Kurdish fighters as proxies for an invasion of Tehran, saying the conflict was already “complicated enough.” He indicated ground operations would only occur if the adversary were sufficiently weakened.
Domestic Economic Backdrop
At home, economic data has also softened. February’s U.S. employment report came in much weaker than expected, while January retail sales disappointed. As a result, the Federal Reserve Bank of Atlanta’s GDPNow model lowered its estimate for Q1 real GDP growth to 2.1% (annualized), down from 3.0%.
This leaves both the U.S. economy and equity markets caught between geopolitical shocks and slowing domestic momentum. The Federal Reserve faces a similar dilemma: if higher oil prices persist, its dual mandate could be squeezed between rising inflation and weakening employment.
Implications for the Economic and Market Outlook
Rapidly Changing Conditions
Given the speed of developments, scenario probabilities are being adjusted. The base case remains the “Roaring 2020s” with a 60% probability. However, the “Meltup” scenario has been cut from 20% to 5%, while the “Meltdown” scenario—now including the risk of 1970s-style stagflation—has been raised from 20% to 35%.
Looking beyond this year to the rest of the decade, the outlook narrows to two primary possibilities:
Roaring 2020s: 85% probability
Stagflating 1970s Redux: 15% probability
Oil Prices and Market Risk
Historically, sharp oil price spikes have often coincided with recessions and bear markets. One recent exception was the 2022 surge following Russia’s invasion of Ukraine, which produced a bear market but not a recession—highlighting the resilience of the U.S. economy.
A similar pattern could play out today. While the economy may absorb higher energy costs, the current oil shock still increases the likelihood of a 10%–15% correction in equities, even if a full bear market ultimately proves avoidable under current conditions.
War Likely to Continue for Several More Weeks
Our relatively optimistic scenario assumes the conflict will persist for a few more weeks, while the U.S. economy and corporate earnings remain resilient, as they have during previous shocks.
One reason for this resilience is the sharp decline in the economy’s energy intensity—measured as total energy consumption per unit of real GDP. In the United States, energy intensity has fallen dramatically over the past several decades, dropping about 70% between 1950 and 2024 and roughly 62% since 1979.
This structural shift means the U.S. economy is far less sensitive to oil-price shocks than in earlier decades, particularly compared with the 1970s oil crisis period when energy costs had a much larger impact on growth and inflation.
The United States economy has gradually shifted from heavy reliance on energy-intensive manufacturing toward a more service-oriented structure, which has helped reduce overall energy consumption relative to economic output.
Additional factors behind the decline in energy intensity include the introduction of Corporate Average Fuel Economy (CAFE) standards and ongoing technological improvements in internal combustion engines, both of which have improved fuel efficiency across the transportation sector.
At the same time, the expansion of the digital economy—including data centers, cloud computing, and artificial intelligence—has been driving stronger electricity demand. Even so, the growing use of natural gas and renewable energy sources in power generation, as well as their increasing adoption in industrial processes that previously relied on oil, should continue to moderate the economy’s direct dependence on crude oil.
Oil production
U.S. oil production, which includes natural gas plant liquids and renewable fuels/oxygenates, has reached a record level of 24 million barrels per day (mbd), significantly exceeding domestic consumption of 21 mbd (Fig. 7 and Fig. 8). As a result, the United States has become a net exporter of roughly 3.0 mbd (Fig. 9). This represents a dramatic shift compared with 2007, when the country was a net importer of approximately 12 mbd.
A potential return of 1970s-style stagflation
A bear market cannot be ruled out if investors begin to expect a repeat of the stagflationary conditions seen in the 1970s. At that time, the global economy was hit by two major oil shocks. In October 1973, Arab members of Organization of the Petroleum Exporting Countries (OPEC) imposed an oil embargo on the United States and other countries that supported Israel during the Yom Kippur War.
Oil prices surged dramatically, rising about fourfold from roughly $3 to nearly $12 per barrel within only a few months. This led to stagflation—an unusual and painful economic condition characterized by slow economic growth, high unemployment, and accelerating inflation (Fig. 10). The crisis resulted in long queues at gasoline stations, fuel rationing, and a heightened awareness of the United States’ dependence on foreign energy supplies.
The second oil crisis occurred after the Iranian Revolution, which significantly disrupted global oil supplies. As a result, oil prices surged, rising to more than twice their previous level. This shock further weakened an already fragile economy and deepened the stagflationary pressures. Together, the two oil crises contributed to two recessions during the 1970s.
According to Polymarket, the probability of a recession this year rose to a three-month high of 34% on Friday, up from 21% on Wednesday, February 25, just before the conflict began (Fig. 11).
U.S. Strategy II: A Direct Confrontation with the IRGC
When the conflict began on Saturday, February 28, the initial assumption was that it would end quickly. However, by the following Tuesday, that view changed, prompting further analysis in that day’s QuickTakes. A key concern is that by eliminating the leadership of the Iranian regime in the opening hour of the war, the United States and Israel effectively unleashed the regime’s most powerful force—the Islamic Revolutionary Guard Corps (IRGC). Often described as a “state within a state,” the IRGC is believed to control 20–40% of Iran’s economy, including large construction companies, telecommunications networks, and oil engineering firms. This financial base allows it to sustain operations even under severe sanctions.
In April 2019, the United States officially designated the IRGC as a Foreign Terrorist Organization—the first time Washington had applied such a label to a branch of another government. Because of their decentralized structure and access to weapons such as suicide drones, the group would be difficult to eliminate through air power alone.
Donald Trump first publicly demanded Iran’s “unconditional surrender” on Friday, March 6. The following day, he clarified that the phrase meant a situation where Iran could no longer continue fighting. On Sunday morning, he also warned that any new Supreme Leader selected by Iran’s Assembly of Experts “would not last long” without his approval, implying a U.S. veto over the succession process following the death of Ali Khamenei.
Without a central leader, Iran lacks a figure capable of formally accepting unconditional surrender. For example, on Saturday, Iranian President Masoud Pezeshkian issued a public apology for Iran’s “fire-at-will” attacks on neighboring countries. Yet only hours later, the IRGC launched another wave of strikes, highlighting a severe breakdown in command and control after Khamenei’s death on February 28. Even without the regime’s top leader, the IRGC’s decentralized design allows regional commanders to operate independently, already carrying out retaliatory drone and missile attacks against U.S. assets and allies in the Gulf.
One objective of the ongoing air campaign is to weaken the IRGC’s ability to suppress domestic opposition. By striking the Basij—the IRGC’s paramilitary force used for internal control—the United States hopes to open the door for a possible uprising inside Iran. However, from the perspective of financial markets, the war will not truly end until commercial ships can move through the Strait of Hormuz without the threat of IRGC attacks. Once that happens, the stock market’s bullish trend could resume.
U.S. Economy: Domestic Impact
Within the United States, economic data from January and February were collected before the war and present a mixed picture. Data from March will likely reveal the first economic effects of the conflict, including rising inflation and a weakening labor market. One immediate sign of inflationary pressure is the sharp increase in gasoline prices, driven by the surge in crude oil prices (Fig. 12).
Food prices may not increase right away, but fertilizer shortages could push them higher in the months ahead. Roughly 25%–33% of the global nitrogen fertilizer trade—particularly urea and anhydrous ammonia—moves through the Strait of Hormuz. On March 2, an Iranian drone attack struck the Ras Laffan Industrial City in Qatar, the world’s largest export hub for liquefied natural gas. Since natural gas is the main feedstock used to produce nitrogen fertilizers, disruptions there could have significant downstream effects. Meanwhile, Saudi Arabia, Oman, and the United Arab Emirates—all among the world’s top ten exporters of urea—are facing logistical and production challenges because of the ongoing air conflict.
If the blockade remains in place into early April, farmers might be forced to shift away from nitrogen-intensive corn-based fertilizer systems toward soybean alternatives or simply reduce fertilizer usage. Lower fertilizer application typically results in reduced crop yields, which could lead to a secondary food price shock toward the end of 2026.
This conflict represents another major test of the resilience of the U.S. economy since the beginning of the decade. It also challenges the so-called “Roaring 2020s” outlook. Despite the new risks, that optimistic scenario remains the base case with a 60% probability. However, the likelihood of a 1970s-style stagflation scenario has been raised to 35%, while the probability of a market melt-up has been reduced to 5% for the rest of 2026.
Recent economic data suggest that the labor market weakened in February and retail sales were soft in January. On the positive side, productivity growth has been particularly strong in recent quarters. If that trend continues, higher productivity could help mitigate some of the stagflationary pressures created by the war.
Employment
The January employment report came in significantly stronger than expected, whereas the February report was much weaker than forecasts. Severe weather conditions and a labor strike negatively affected February’s figures. As a result, nonfarm payrolls declined by 92,000 last month.
In addition, the January payroll figure was slightly revised downward by 4,000 to 126,000, while December’s data was adjusted from a previously reported gain of 48,000 to a decline of 17,000 (Fig. 13). Meanwhile, the unemployment rate increased marginally, rising to 4.4% in February from 4.3% in January.
The positive development is that average hourly earnings increased by 0.4% month over month in February, while the average workweek remained unchanged. Consequently, our Earned Income Proxy, which estimates wages and salaries within personal income, rose by 0.3% in February, reaching a new record high (Fig. 14).
The Federal Reserve is facing a policy dilemma: a softening labor market, which would normally justify cutting the federal funds rate, versus rising energy and fertilizer costs linked to the Iran conflict, which could push inflation higher and argue for keeping rates unchanged or even tightening policy.
This clash of signals complicates the Fed’s next move. Weak employment data suggests the economy may need monetary support, while higher oil and commodity prices risk reigniting inflation, forcing policymakers to remain cautious about easing.
Retail Sales
In January, retail sales declined by 0.2% month over month, while December’s figures, previously reported as showing moderate growth, were revised downward to no change compared with the previous month.
Among sectors, nonstore retailers experienced a 1.9% monthly increase, whereas motor vehicle and parts dealers recorded a 0.9% decline (Fig. 15). Sales at gasoline stations also dropped 2.9%.
One positive sign was a 0.3% month-over-month rise in core retail sales, which excludes several more volatile categories.
The rollout of last year’s One Big Beautiful Bill Act is expected to support consumer spending in the weeks ahead. A “February rebound” in retail activity is likely as record-high tax refunds—about 20% larger on average than last year—begin reaching households’ bank accounts.
Productivity
Labor productivity—defined as output per hour worked—increased at an annualized rate of 2.8% in Q4 2025. This marks the third consecutive quarter in which productivity growth has surpassed the long-term average of 2.1%, a benchmark calculated from data beginning in the late 1940s (Fig. 16).
At the same time, unit labor costs rose by only 1.3% year over year in Q4 2025, which helped contain inflationary pressures in the economy (Fig. 17).
GDPNow
As noted earlier, the newest economic data prompted the Federal Reserve Bank of Atlanta’s GDPNow model to lower its forecast for first-quarter 2026 economic growth from 3.0% to 2.1% (Fig. 18).
Oil prices increased on Monday as the ongoing conflict involving the United States, Israel, and Iran continued to disrupt oil production and transportation across the Middle East, despite a call from Donald Trump for international cooperation to protect the strategic Strait of Hormuz.
Brent crude futures climbed by $2.30, or 2.2%, reaching $105.44 per barrel at 0903 GMT, while U.S. West Texas Intermediate crude rose $1.29, or 1.3%, to $100 per barrel.
Both benchmarks have jumped more than 40% this month, reaching their highest levels since 2022. The surge followed U.S.–Israeli strikes on Iran, which led Tehran to halt shipments through the Strait of Hormuz—an essential route for global energy trade—disrupting roughly one-fifth of the world’s oil and LNG supplies.
On Monday, oil-loading activities were suspended at the UAE’s Fujairah port after a drone strike triggered a fire in the emirate’s petroleum industrial area, according to two sources who spoke to Reuters.
Fujairah, located outside the Strait of Hormuz, serves as an export hub for around 1 million barrels per day of the UAE’s flagship Murban crude oil, equivalent to roughly 1% of global oil demand.
The International Energy Agency warned on Thursday that the conflict in the Middle East is causing the most severe oil supply disruption on record, as major producers including Saudi Arabia, Iraq, and the United Arab Emirates have reduced output since the war began.
According to PVM analyst Tamas Varga, investors appear to understand that if just two weeks of disruption in the Strait of Hormuz have already caused significant damage to production, exports, and refining, a prolonged conflict could have far more serious consequences, particularly as global inventories continue to decline.
Analysts from ING said on Monday that recent U.S. strikes on Kharg Island over the weekend have heightened concerns about oil supply, as the majority of Iran’s crude exports are shipped through the island.
Although the attacks appeared to focus on military installations rather than energy infrastructure, ING noted that they still threaten supply stability. This is because Iranian crude is currently among the few oil flows still passing through the vital Strait of Hormuz.
During the weekend, Donald Trump warned that additional strikes could target Kharg Island—an export hub responsible for roughly 90% of Iran’s oil shipments—after U.S. forces hit military facilities there, prompting retaliatory actions from Tehran.
On Sunday, Trump called on other countries to assist in safeguarding this critical energy corridor and said that Washington was holding discussions with several nations about jointly monitoring and securing the strait.
Trump also stated that the United States remained in communication with Iran, though he expressed skepticism that Tehran was ready to engage in meaningful negotiations to bring the conflict to an end.
Meanwhile, the International Energy Agency announced on Sunday that more than 400 million barrels of strategic oil reserves would soon be released into the market—a record intervention intended to stabilize prices amid disruptions caused by the Middle East conflict.
According to the agency, reserves from countries in Asia and Oceania will be made available immediately, while supplies from Europe and the Americas are expected to enter the market by the end of March.
SEB analyst Meyersson said that as the conflict moves into its third week, the absence of a clear resolution is increasing global market anxiety about the possibility of an uncontrolled escalation.
However, U.S. Energy Secretary Chris Wright said on Sunday that he expected the war to end within the next few weeks, which could allow oil supplies to recover and energy prices to decline.
U.S. President Donald Trump warned that he could authorize strikes on Iran’s oil infrastructure on Kharg Island if Tehran continues attacks on vessels passing through the strategically crucial Strait of Hormuz. The threat added further uncertainty to global markets already facing one of the most significant supply disruptions in history.
Trump accompanied the warning with a social media message claiming that U.S. forces had “completely destroyed” military targets on Kharg Island. The island functions as the main export terminal for roughly 90% of Iran’s crude shipments and is located about 300 miles northwest of the Strait of Hormuz.
However, the president clarified that American strikes had not targeted Kharg’s oil infrastructure. He added that if Iran or any other party attempted to block the safe passage of ships through the Strait of Hormuz, Washington could reconsider that restraint.
Trump also stated that Iran lacked the capability to defend itself against U.S. military action. In a post on Truth Social, he urged Iran’s armed forces and their allies to surrender, warning that continuing the conflict could further devastate the country.
Iran’s military responded on Saturday by warning that any attack on its oil or energy facilities would be met with retaliation against installations belonging to oil companies cooperating with the United States in the region, according to Iranian media reports.
Iran’s semi-official Fars News Agency reported that more than 15 explosions were heard on Kharg Island during the U.S. strikes. Sources said the attacks hit air-defense systems, a naval installation, and airport infrastructure, while leaving oil facilities untouched.
Energy markets were closely monitoring whether the strikes had damaged Kharg Island’s complex network of pipelines, storage tanks, and export terminals. Even minor disruptions could further constrain global oil supply and intensify volatility in energy markets.
Elsewhere in the region, Iran’s Islamic Revolutionary Guard Corps announced that it had carried out additional strikes against Israel in coordination with Lebanon’s Hezbollah, according to Iran’s Tasnim News Agency.
Meanwhile, the Israel Defense Forces said on Friday that its air force had attacked more than 200 targets across western and central Iran within the past 24 hours, including missile launchers, air-defense systems, and weapons manufacturing facilities.
The United States has also suffered losses. The U.S. military confirmed that all six crew members aboard a refueling aircraft that crashed in western Iraq had died.
According to The Wall Street Journal, citing U.S. officials, five U.S. Air Force tanker aircraft stationed at a base in Saudi Arabia were damaged in an Iranian missile strike and were undergoing repairs.
Gulf and Lebanon emerge as key flashpoints
Oil markets have experienced sharp price swings in response to Trump’s shifting comments about the potential duration of the conflict, which began on February 28 when large-scale U.S. and Israeli airstrikes targeted Iran. The fighting quickly expanded into a wider regional confrontation with major implications for global energy and financial markets.
Lebanon has become another focal point of the conflict, with Israeli forces and Hezbollah exchanging strikes in and around Beirut.
In addition to missile and drone attacks against Israel and U.S.-aligned Gulf states, Iran’s Islamic Revolutionary Guard Corps has attempted to disrupt shipping through the Strait of Hormuz, a vital route that carries about 20% of the world’s fossil fuel supplies.
Trump said on Friday that the United States Navy would soon begin escorting oil tankers through the waterway.
Although he previously suggested the war might last only a few weeks, Trump declined to predict a timeline for its end, saying the conflict would continue for as long as necessary.
Despite the fighting, Iran has continued exporting crude oil while several Gulf producers have halted shipments due to concerns about potential Iranian attacks.
Satellite imagery reviewed by TankerTrackers.com showed multiple very large crude carriers loading oil at Kharg Island earlier in the week. Iran exported between 1.1 million and 1.5 million barrels per day from the start of the war through midweek.
Bob McNally, president of Rapidan Energy Group, said Trump’s remarks could push markets to focus on the possibility that the current energy disruption — already the largest on record — might worsen and persist longer than expected.
Some industry analysts doubt Kharg Island’s oil infrastructure will remain untouched. Josh Young, chief investment officer at Bison Interests, remarked that bombing the island without hitting its oil facilities would be pointless.
War spreads across the Middle East
Iran’s new supreme leader, Mojtaba Khamenei, said in his first public remarks that the Strait of Hormuz would remain closed and warned neighboring countries to shut down U.S. military bases on their soil or risk becoming targets themselves.
European governments are now discussing measures to protect their interests. France has been consulting with European, Asian, and Gulf Arab partners on plans to deploy warships to escort commercial tankers through the Strait of Hormuz, according to French officials.
After nearly two weeks of fighting, about 2,000 people have been killed — the majority in Iran, with significant casualties also reported in Lebanon and increasing losses in Gulf states that have rarely been on the front lines of regional conflicts.
Millions of civilians have been displaced. In Lebanon, as Israeli airstrikes continued to hit the outskirts of Beirut, the country’s interior minister said authorities were struggling to accommodate the hundreds of thousands of people seeking refuge in the capital.
WTI declined after Australia’s Energy Minister Chris Bowen announced the release of 762 million liters of fuel from the country’s reserves. However, oil prices could climb again as the Strait of Hormuz remains closed amid intensifying tensions between the U.S., Israel, and Iran. Iran’s new supreme leader Mojtaba Khamenei stated that keeping the strait shut should continue to serve as a “tool to pressure the enemy.”
West Texas Intermediate (WTI) crude traded slightly lower during Asian trading hours on Friday, hovering around $95.20 per barrel after surging more than 9% in the previous session. Prices eased after Australia’s Energy Minister Chris Bowen announced that the country would release up to 762 million liters of fuel from strategic reserves and relax fuel stockholding rules to ease supply disruptions linked to the conflict with Iran.
The Australian government also plans to cut minimum fuel reserve requirements by as much as 20% in an effort to stabilize domestic supply. Nevertheless, oil prices could continue to climb as the Strait of Hormuz remains effectively closed amid escalating tensions between the United States, Israel, and Iran.
Since the war began, U.S. crude prices have jumped more than 40%. The International Energy Agency (IEA) warned that the U.S.–Israeli conflict with Iran could be triggering the largest supply disruption in the history of the global oil market.
Reports indicate that officials from the U.S. Department of Defense and the National Security Council underestimated Iran’s willingness to shut down the Strait of Hormuz in response to U.S. military strikes while planning the operation. The waterway carries around one-fifth of global oil consumption, making it one of the most strategically vital shipping routes in the world. Any interruption to tanker traffic there can rapidly impact global energy markets.
In his first public remarks since assuming power, Iran’s new supreme leader Mojtaba Khamenei said the closure of the Strait of Hormuz should remain a “tool to pressure the enemy.” He also warned that all U.S. military bases in the region should be shut down immediately or risk potential attacks.
Oil prices rebounded on Wednesday as investors questioned whether a planned large-scale release of strategic reserves by the International Energy Agency would be enough to offset potential supply disruptions caused by the U.S.–Israeli conflict with Iran.
Brent crude futures rose 59 cents, or 0.7%, to $88.39 a barrel by 07:27 GMT, while West Texas Intermediate crude oil gained 98 cents, or 1.2%, to $84.43 per barrel.
Both benchmarks had extended losses earlier in Asian trading after plunging more than 11% on Tuesday, despite U.S. crude initially jumping 5% at the market open.
According to a report by The Wall Street Journal, the proposed IEA release would surpass the 182 million barrels collectively released by member countries in 2022 following the Russian invasion of Ukraine.
Analysts at Goldman Sachs said such a stockpile release could offset roughly 12 days of an estimated 15.4 million barrels-per-day disruption in Gulf exports.
Meanwhile, the conflict continued to escalate. The U.S. and Israel launched what both the Pentagon and Iranian sources described as the most intense airstrikes of the war on Tuesday. The United States Central Command also said the U.S. military had destroyed 16 Iranian mine-laying vessels near the Strait of Hormuz, after Donald Trump warned that any mines placed in the waterway must be removed immediately.
Some analysts remained skeptical that the reserve release would significantly ease market tensions. Suvro Sarkar, energy sector team lead at DBS Bank, said such moves were unlikely to solve the crisis, adding that oil prices would largely depend on how long the conflict with Iran continues. Strategic signals, including potential reserve releases, may help temper near-term price spikes, he added.
Leaders of the Group of Seven have also convened to discuss a coordinated emergency stockpile release. Emmanuel Macron is set to host a virtual meeting with other G7 leaders to assess the Middle East conflict’s impact on energy markets and possible responses.
Trump has repeatedly stated that the U.S. is prepared to escort oil tankers through the Strait of Hormuz if necessary. However, sources told Reuters that the United States Navy has so far declined shipping industry requests for escorts, citing high security risks.
Supply concerns remain
Energy infrastructure disruptions have also added to supply worries. Abu Dhabi National Oil Company reportedly shut down its Ruwais refinery after a drone strike caused a fire at the complex.
At the same time, Saudi Arabia, the world’s largest oil exporter, is attempting to increase shipments via the Red Sea. However, current export levels remain far below what would be needed to fully offset the decline in flows through the Strait of Hormuz. The kingdom is relying on the Red Sea port of Yanbu to boost shipments as neighbors such as Iraq, Kuwait, and the UAE have already reduced production.
Energy consultancy Wood Mackenzie estimates the war is currently cutting Gulf oil and refined product supplies by about 15 million barrels per day, a disruption that could potentially push crude prices as high as $150 per barrel.
Analysts at Morgan Stanley noted that even a quick resolution to the conflict could still leave energy markets facing several weeks of disruption.
Meanwhile, signs of strong demand also supported prices. Data from the American Petroleum Institute indicated that U.S. crude, gasoline, and distillate inventories all declined last week.
All major asset classes were still showing positive year-to-date returns as of Friday’s close. However, market conditions can shift dramatically over a single weekend.
The ongoing joint U.S.–Israel military operation against Iran is expected to persist for days, potentially even weeks. While the longer-term market impact remains uncertain, it is reasonable to expect that the prevailing bullish sentiment — already exhibiting signs of exhaustion in certain segments — may become another casualty of escalating tensions in the Middle East.
Through February 27, foreign equities and commodities had emerged as the top performers in 2026, based on ETF benchmarks. Yet assumptions that seemed firmly grounded just a week ago now appear outdated in light of rapidly evolving geopolitical developments.
The central issue now is the degree of vulnerability facing the global economy. In short, the longer the conflict persists, the greater the risk of economic blowback. At present, the likelihood of a swift resolution appears limited, particularly as the war expands across the Middle East, including Iran’s strike on Saudi oil infrastructure.
According to Torbjorn Soltvedt, an analyst at Verisk Maplecroft, the attack on Ras Tanura Refinery represents a meaningful escalation, placing Gulf energy infrastructure directly in Iran’s crosshairs. He noted that a prolonged period of instability is likely, as Iran attempts to inflict economic pressure by targeting tankers, regional energy facilities, trade corridors, and U.S. security partners.
Should the conflict drag on and oil prices remain elevated, the global economic impact could be substantial. In 2025, approximately 31% of all seaborne crude shipments passed through the Strait of Hormuz, according to analytics firm Kpler. Given Iran’s strategic positioning, it retains the capacity to disrupt — if not completely halt — shipping flows through this critical chokepoint.
Norbert Rücker, head of economics at Julius Baer, emphasized that the broader economic consequences hinge largely on the uninterrupted flow of oil and gas through Hormuz. The gravest risk, he suggested, is not necessarily a full closure, but significant damage to key regional energy infrastructure.
Kpler further cautioned that any meaningful shutdown — or even a prolonged de facto closure driven by insurers withdrawing coverage — would likely trigger simultaneous supply shocks across multiple commodity markets.
How long the conflict will endure remains highly uncertain. On Sunday, Donald Trump indicated that the military campaign could last “four weeks or less,” though such timelines in geopolitical conflicts are often fluid.
Energy markets are already reacting. Crude prices are climbing, with the international Brent Crude benchmark trading near $78 per barrel this morning — its highest level in more than a year.
The Trump administration’s stated objective of pursuing regime change in Iran points to the possibility of a protracted conflict. On Sunday, Donald Trump urged “Iranian patriots who yearn for freedom” to seize the moment and reclaim their country — rhetoric that signals ambitions extending beyond limited military strikes.
However, achieving regime change would be extraordinarily difficult. Although Iran’s Supreme Leader, Ali Khamenei, was reportedly killed in Saturday’s airstrikes, the Islamic Revolutionary Guard Corps remains a formidable power center. The Revolutionary Guard — Iran’s dominant military institution with vast economic holdings that help finance its operations — has likely prepared for sustained confrontation following years of tensions and prior strikes by the U.S. and Israel. Airpower alone is unlikely to dismantle what amounts to the regime’s praetorian guard.
According to Jonathan Panikoff, now affiliated with the Atlantic Council, the decisive factor will ultimately be internal dynamics. Once U.S. and Israeli strikes subside, any movement to end the regime would depend on whether rank-and-file security forces stand aside or align with popular unrest. Otherwise, those elements of the regime that retain control of weapons are likely to use force to preserve power.
Regime change in Iran is currently viewed as only moderately probable. Betting markets on Polymarket assign roughly a 42% likelihood to that outcome. The takeaway: expectations for a swift resolution appear limited, with the conflict likely to persist until one side concedes strategic ground.
However, the longer-term outlook may look different. Sanam Vakil, director of the Middle East and North Africa Program at Chatham House, argues that over time the survival of the Islamic Republic in its current form is doubtful. In his assessment, the regime as it exists today may ultimately prove unsustainable.
If that scenario unfolds, the central question shifts to succession: what replaces the current leadership — and whether any transition ushers in greater stability or instead fuels further instability within Iran and across the broader Middle East.
The world’s most critical oil chokepoint has effectively gone offline — and energy markets are adjusting instantly.
Brent crude surged 13% to $82.37 per barrel on Monday morning, marking its largest one-day jump in four years. The rally followed coordinated U.S. and Israeli airstrikes on Iran over the weekend — an operation the Pentagon has labeled Operation Epic Fury. The strikes killed Supreme Leader Ali Khamenei, ending his 36-year rule and plunging the Islamic Republic into its most severe political upheaval since 1979. Tehran responded swiftly, launching attacks on U.S. bases across the region and, more critically for global markets, targeting oil tankers moving through the Strait of Hormuz.
That narrow passageway handles roughly 20% of global oil flows each day. By Monday morning, it was effectively shut. Maersk suspended all vessel transits. Over 200 oil and LNG carriers dropped anchor. Iran’s Islamic Revolutionary Guard Corps reportedly warned ships that no vessels would be permitted to pass. This is no longer rhetoric — it is a tangible supply shock.
Why the Oil Outlook Has Fundamentally Shifted
Oil markets are accustomed to geopolitical tension. They have repeatedly absorbed headlines without lasting disruption. What they cannot easily digest is the sudden loss of one-fifth of global supply with no clear timeline for restoration.
Just days ago, Brent was trading near $73, and the prevailing narrative centered on excess supply. The U.S. Energy Information Administration projected WTI crude would average $53 by year-end. OPEC+ was discussing potential production increases. Market bears appeared firmly in control.
That backdrop has flipped. Brent settled near $79 after briefly touching $82, while WTI climbed from $67 on Friday to $72. Diesel futures — a key barometer of industrial activity — spiked more than 20% intraday. U.S. gasoline futures advanced 9% to their highest level since July 2024. According to GasBuddy analyst Patrick De Haan, retail gasoline prices could rise by 10 to 30 cents per gallon in the near term, with some stations potentially increasing prices by as much as 85 cents.
The market is no longer pricing geopolitical risk. It is pricing physical disruption.
“The magnitude of the retaliation caught the market completely off guard,” said Jorge Leon, head of geopolitical analysis at Rystad Energy. “This is far removed from what investors had been pricing in.”
OPEC+ attempted to ease concerns on Sunday by announcing a relatively small output increase of 206,000 barrels per day for April. However, as Helima Croft of RBC Capital Markets noted, incremental barrels offer limited relief if transport routes remain compromised. “Accessing spare capacity becomes highly constrained when key waterways are effectively shut down,” she wrote.
From a broader market perspective, Dominic Wilson of Goldman Sachs emphasized that equities will be driven less by dramatic headlines and more by the duration of the energy shock. In a client note, he argued that only a prolonged and severe spike in oil prices would materially alter the global growth trajectory.
Meanwhile, analysts at JPMorgan outlined four key variables shaping the outlook: the scale of supply disruption, the length of the outage, the speed at which alternative production can be activated, and the credibility of a diplomatic resolution. On Sunday, Donald Trump suggested U.S. military operations could extend for “four to five weeks” — a timeframe that implies a potentially sustained period of elevated risk for energy markets.
How to Position for the Oil Shock
Energy equities are the clearest near-term beneficiaries, and capital is already rotating aggressively into the space. The Energy Select Sector SPDR Fund (XLE) notched a fresh 52-week high on Monday. Below are five vehicles to consider:
Exxon Mobil (XOM)
Trading near $155, just shy of its all-time high of $156.93, Exxon represents the most diversified large-cap exposure to elevated crude prices. The company produced 4.7 million barrels of oil equivalent per day last quarter, exceeded Q4 expectations with EPS of $1.71, and has earmarked $20 billion in buybacks for 2026.
Wells Fargo recently lifted its price target to $183 from $156. CEO Darren Woods reiterated on the latest earnings call that there is “no near-term peak Permian” for the company. With Permian breakevens around $35 per barrel and production in Guyana scaling, incremental oil price gains translate efficiently into free cash flow expansion.
Chevron (CVX)
Shares briefly reached a new 52-week high of $196.76 before closing near $193. Chevron’s estimated Brent breakeven — inclusive of dividends and capex — sits near $50 per barrel. At current levels around $79 Brent, the company is generating substantial surplus cash.
Bank of America raised its target to $206 from $188. Chevron is also reportedly in exclusive discussions to assume control of Iraq’s West Qurna 2 field from Lukoil, a move that would add meaningful production upside. CEO Mike Wirth recently characterized the company as “bigger, stronger, and more resilient than ever.”
ConocoPhillips (COP)
Up nearly 4% to roughly $118 and marking a new 52-week high, ConocoPhillips offers more direct leverage to crude prices given its pure upstream model.
Goldman Sachs added COP to its U.S. Conviction Buy List, arguing the stock is approaching a material re-rating. The Marathon Oil integration is enhancing scale, while a $2 billion asset divestiture is sharpening its Permian focus. At current oil prices, COP is generating approximately $7 in EPS, implying a sub-17x multiple — reasonable for a commodity cycle inflection.
Occidental Petroleum (OXY)
Trading near $54, Occidental offers higher beta exposure. Its more levered balance sheet amplifies upside in a sustained higher-price environment.
Berkshire Hathaway holds roughly 28% of the company, providing a credibility anchor via Warren Buffett’s long-term endorsement. While the Carbon Engineering acquisition adds energy-transition optionality, the immediate thesis is straightforward: if Brent sustains levels above $80, OXY’s earnings power expands rapidly, making a $70+ valuation plausible under that scenario.
Energy Select Sector SPDR Fund (XLE)
For investors seeking diversified sector exposure without single-name volatility, XLE remains the default allocation. Trading near $93 and at a 52-week high, the ETF is heavily weighted toward Exxon (~22%), Chevron (~17%), and ConocoPhillips (~8%), which together account for nearly half the portfolio.
XLE provides integrated exposure across oil, gas, and energy services in a single vehicle. Should the conflict extend for several weeks — as suggested by Donald Trump — the entire sector could undergo a structural repricing higher.
The Bear Case You Can’t Ignore
History shows that geopolitical shocks often produce violent spikes followed by equally sharp reversals. During the June 2025 “12-day war” between Israel and Iran, crude initially surged but retraced quickly once it became clear that physical supply flows were unaffected.
While this episode involves direct tanker strikes and the functional closure of the Strait of Hormuz, some analysts still see a limited-duration event. Max Layton of Citigroup argues the base case is a leadership shift in Tehran that brings the conflict to an end within one to two weeks.
A similar view comes from Landon Derentz at the Atlantic Council. He notes that regional energy infrastructure remains intact and that global supply capacity has not been structurally damaged. The oversupply dynamics that capped prices before the conflict have not disappeared. If Hormuz reopens quickly, crude could surrender much of its recent gains.
The Inflation Risk
There is also a macro layer that complicates the bullish narrative. Sustained higher oil prices feed directly into transportation, manufacturing, and consumer input costs. That dynamic could constrain the Federal Reserve, forcing policymakers to delay or abandon anticipated rate cuts.
Monday’s Institute for Supply Management manufacturing data showed input costs rising at their fastest pace since 2022. Treasury yields have begun to move higher in response. If oil remains elevated long enough to reignite inflation pressures, the Fed’s stance could shift from easing to holding — a headwind for equities broadly, even if energy stocks outperform on relative terms.
A Structural Repricing of Risk
That said, even a swift diplomatic resolution would not fully reset the clock. Markets were effectively assigning near-zero geopolitical risk premium to oil prior to this weekend. That complacency has been challenged.
Energy equities were already trading at modest multiples relative to free cash flow. Now they have a tangible catalyst. Even if the conflict de-escalates quickly, the perception of risk — and the embedded premium in crude pricing — is unlikely to vanish overnight.
What to Watch
Three catalysts in the next 72 hours. First, Iran’s response — Tehran’s next move over the next 24 to 48 hours will determine whether this is a two-week shock or a multi-month crisis. Any strikes on Saudi or UAE energy infrastructure pushes Brent toward $90 or beyond.
Second, the Strait of Hormuz reopening timeline. If shipping insurance companies begin covering Hormuz transits again this week, oil pulls back. If the effective closure extends past Friday, the supply disruption becomes real and sustained — and $80+ becomes the new floor.
Third, the U.S. Strategic Petroleum Reserve. The IEA said Monday it’s in contact with major producers about potential coordinated reserve releases. Any SPR drawdown announcement would cap oil’s upside temporarily but wouldn’t change the structural supply picture.
The energy sector just went from afterthought to the most important trade in the market. Whether this conflict lasts two weeks or two months, the companies producing oil at $35 to $50 breakevens and generating massive free cash flow at $70 to $80 Brent are going to reward shareholders. The question isn’t whether to own energy — it’s how much.
Over the weekend, the United States and Israel launched coordinated missile and drone strikes on Iran, targeting key military facilities in an attempt to curb Tehran’s nuclear ambitions. The operation reportedly killed Iran’s Supreme Leader, Ayatollah Ali Khamenei, marking a dramatic escalation and sharply increasing regional tensions. Iran responded swiftly with a wide-ranging missile campaign aimed not only at Israel but also at several Gulf states, including Qatar, the United Arab Emirates, and Bahrain. The fallout rippled across the region, prompting multiple Gulf nations to close their airspace and suspend equity trading.
Energy markets were also disrupted. Shipping activity through the Strait of Hormuz—a strategic chokepoint responsible for roughly 20% of global oil flows—slowed dramatically as tanker operators rerouted vessels for security reasons. Meanwhile, Qatar temporarily halted liquefied natural gas production at the world’s largest export terminal following a drone strike. U.S. President Donald Trump indicated that American military operations would persist, suggesting tensions could remain elevated in the near term.
From a market standpoint, energy represents the primary transmission channel of this crisis into global financial assets. Prolonged or severe disruptions to oil and gas supply could push up inflation expectations, dampen business sentiment, and heighten cross-asset volatility. Simply put, the longer and more intense the geopolitical shock, the greater the potential market fallout.
This dynamic was visible when markets reopened Monday. Brent crude briefly climbed to $82 per barrel amid concerns over tighter supply. Sustained price strength would likely reinforce inflation pressures, with knock-on effects for equities and interest rates. However, for oil to remain structurally elevated, investors would likely need confirmation of a more extended—or even complete—closure of the Strait of Hormuz. Such a development would mark a significant escalation beyond current disruptions and warrant a larger risk premium in energy markets. Political factors within Iran, particularly how the Islamic Revolutionary Guard Corps (IRGC) chooses to respond, will be critical. Whether the IRGC de-escalates or intensifies its actions will determine how much of the current market reaction reflects temporary risk pricing versus a genuine physical supply shock.
Oil Rallies After Tanker Flows Stall in the Strait of Hormuz
With developments unfolding quickly, tracking energy prices remains one of the clearest ways to gauge both the intensity and staying power of the geopolitical risk. Oil and natural gas markets typically react swiftly to new headlines, making them a real-time indicator of whether tensions are easing, stabilizing, or escalating further. As a result, close monitoring of these markets will be crucial in assessing how the conflict may shape global financial conditions in the coming days and weeks.
The United States has built up its most significant military footprint in the Middle East since 2003, deploying two aircraft carriers and F-22 stealth fighters. Indirect negotiations in Geneva between US envoys Steve Witkoff and Jared Kushner and Iranian officials concluded Thursday without progress. The Trump administration has cautioned that Iran will face “drastic consequences” if it fails to agree to meaningful nuclear concessions.
Israel has activated bomb shelters and warned Lebanon that its infrastructure could be targeted if Hezbollah becomes involved in any US–Iran confrontation. The US State Department authorized the departure of non-essential personnel and family members from the US Embassy in Israel on February 27, following similar instructions for the embassy in Beirut issued on February 23. Meanwhile, reports suggest the US 5th Fleet in Bahrain has been scaled back to fewer than 100 essential personnel.
China has urged its citizens to leave Iran immediately. South Korea escalated its advisory to a “Level 3” red alert, instructing nationals to depart. Australia has offered voluntary departure to diplomatic dependents in the UAE, Qatar, and Jordan, citing a worsening security environment. Several European countries, including Finland, Sweden, and Serbia, have also recommended that their citizens evacuate Iran.
Commercial carriers such as KLM have begun suspending regional flights. Governments are encouraging citizens to exit while commercial routes remain available, warning that air corridors could close quickly if hostilities erupt.
Does this mean a US–Israel strike on Iran is imminent? Possibly—but diplomatic channels remain active. The State Department confirmed that Secretary of State Marco Rubio will travel to Israel early next week. Meanwhile, reports indicate that Omani Foreign Minister Badr Al Busaidi is set to meet Vice President JD Vance and other US officials in Washington in previously undisclosed talks aimed at preventing escalation.
Oil markets are ending February on firm footing, with prices rising about $1 per barrel during the final trading week as tensions intensify. This week’s indirect talks in Geneva produced no tangible outcome, and Trump’s 10–15 day deadline is fast approaching. At the same time, attention to the upcoming OPEC+ summit has been muted—potentially opening the door for Saudi Arabia to surprise markets with another production increase for April.
The recovery in oil prices, combined with a reshuffling of global equity allocations, has recently delivered a notable lift to US energy ETFs (see chart). However, today’s modest $1.50 rise in crude suggests markets may have already priced in the risk of a swift conflict—or remain unconvinced that one is imminent.
Saudi Arabia could still opt to raise output, but much of that additional supply would need to transit the Strait of Hormuz, a critical chokepoint that Iran has repeatedly threatened to shut down.
Between 2023 and 2025, the 10-year US Treasury yield moved largely in tandem with the price of Brent crude (see chart), reflecting a strong correlation between energy prices and long-term interest rates.
In recent weeks, however, that relationship has diverged. While oil prices have climbed, the 10-year yield has declined. This shift suggests that investors may be rotating into bonds as a safe haven, anticipating that a renewed conflict in the Middle East could trigger broader geopolitical instability and economic uncertainty.
It was notable that the 10-year yield slipped below 4.00% today, even after a stronger-than-expected PPI inflation print.
More broadly, both nominal and real 10-year yields have traded within a relatively narrow range since 2023 (see chart). In our view, that sideways pattern is likely to persist through the remainder of the year.
The United States and Israel carried out coordinated strikes on Iran on Saturday, killing Supreme Leader Ali Khamenei and triggering a fresh wave of conflict across the Middle East.
The attacks unsettled neighboring Gulf Arab oil producers as concerns mounted over further escalation, particularly after Iran retaliated with missile launches toward Israel.
According to four trading sources, several major oil companies and leading commodity traders temporarily halted crude and fuel shipments through the Strait of Hormuz following the strikes.
Key Reactions from Analysts
Helima Croft, Head of Commodities Research, RBC Capital:
Croft said the long-term impact on oil prices will depend on whether the IRGC retreats under sustained airstrikes or escalates further, potentially increasing the costs of what she described as Washington’s second regime-change effort in just over two months.
She added that regional leaders had cautioned Washington about the spillover risks of renewed confrontation with Iran, warning that oil prices above $100 per barrel would pose a serious threat.
Croft also emphasized that OPEC’s ability to cushion supply shocks is limited. Aside from Saudi Arabia, most OPEC+ members are already producing near capacity, meaning any announced output increase may have little practical effect.
Jorge Leon, SVP and Head of Geopolitical Analysis, Rystad Energy:
Leon noted that while alternative infrastructure exists to bypass the Strait of Hormuz, a prolonged disruption could effectively remove 8–10 million barrels per day from the market—significant in a world consuming roughly 100 million barrels daily.
He suggested countries with strategic petroleum reserves may release supplies if the disruption drags on. Absent quick de-escalation, he expects oil prices to reprice sharply higher at the start of the week.
Eurasia Group energy analysts:
They anticipate oil prices will surge when markets reopen. If fighting continues into Sunday, prices could jump $5–$10 above the current $73 level, especially given Iran’s claim that it has closed the Strait of Hormuz and reports of tanker disruptions.
Barclays energy analysts:
Barclays warned that markets may confront worst-case supply fears on Monday. Brent crude could climb to $100 per barrel as traders assess the risk of major supply interruptions amid intensifying regional instability.
Vishnu Varathan, Head of Macro Research (Asia ex-Japan), Mizuho, Singapore:
Varathan said recurring regional attacks may become the new norm, keeping oil prices elevated as both production and transit routes remain vulnerable. OPEC could face pressure to boost output, though a 10–25% risk premium on oil prices would not be excessive—even without a full blockade of the Strait of Hormuz, which he described as a potential 50% premium event.
Christopher Wong, Strategist, OCBC, Singapore:
Wong expects geopolitical risk premiums to rise as markets open. Safe-haven assets like gold are likely to gap higher, while oil could strengthen on supply concerns. Meanwhile, risk assets and high-beta currencies may experience early volatility, particularly if retaliation or regional spillover intensifies.
Nick Ferres, CIO, Vantage Point Asset Management, Singapore:
Ferres argued that energy remains undervalued and should rally at the start of the week—alongside gold.
Thunderous explosions and massive fireballs from missiles launched by Iran across the Gulf underscored a long-feared reality for regional leaders: Tehran can carry the fight directly to their territory. The attacks are likely to solidify Arab governments’ backing for joint action by the United States and Israel.
Even on the Palm Jumeirah — Dubai’s most exclusive enclave — blasts shook buildings and struck a luxury hotel, sending residents scrambling as missiles and interceptors streaked overhead. The scenes made clear that the conflict had spilled beyond Iran’s borders, just as Tehran had cautioned.
“What has now been demonstrated is that we — not the United States — are directly exposed,” said Ebtesam Al-Ketbi of the Emirates Policy Center. “When Iran attacked, it hit the Gulf first, claiming it was targeting U.S. bases.”
Analysts say Tehran’s strikes are designed to show that no American ally in the region is out of reach and to increase the price of supporting Washington’s campaign. But they warn that any error in judgment could turn calibrated signaling into full-scale war.
Gulf officials argue that by hitting oil-producing neighbors, Iran is widening the battlefield and putting global energy supplies at risk, not merely regional stability. For rapidly expanding economies such as Saudi Arabia, Qatar and the United Arab Emirates — all reliant on open skies, safe sea lanes and steady trade — a broader confrontation would be severely destabilizing.
By casting the confrontation as a campaign for regime change in Iran, President Donald Trump has raised the stakes, increasing the likelihood that Tehran could retaliate more aggressively, observers say.
If Iran were to misjudge and directly attack Gulf Cooperation Council states, the nature of the conflict would shift dramatically. Regional governments would be under intense pressure to respond as lives and strategic assets come under threat.
Some Gulf analysts contend that Iran is undermining its own strategic interests by striking neighboring states. While Tehran insists it is targeting U.S. military installations, Gulf capitals view the attacks as clear violations of sovereignty.
In recent indirect talks with Washington aimed at defusing tensions, Iran signaled willingness to negotiate over its nuclear program but refused to discuss its ballistic missile arsenal or its backing of regional militias. Tehran has suggested that such issues be handled in a regional dialogue excluding the United States — a proposal Gulf states argue would weaken rather than strengthen the existing security framework, given their longstanding reliance on U.S. protection.
From their perspective, Iran’s missile capabilities and network of proxies pose immediate threats. Without external security guarantors, they see little credibility in a regional-only arrangement.
Meanwhile, Trump’s rhetoric has shifted notably. Whereas he previously described potential U.S. strikes as leverage to secure a nuclear agreement, he has more recently framed them in terms that imply regime change. Unlike the large-scale 2003 invasion of Iraq under George W. Bush, which involved a prolonged troop deployment and occupation, the current strategy appears focused on limited air operations designed to achieve swift, visible outcomes while minimizing American casualties and domestic political fallout.
The bet is that a short, decisive campaign would yield political benefits, whereas a drawn-out war — especially one disrupting oil flows or the broader economy — could carry heavy costs.
Should the conflict expand to include U.S. bases, diplomatic missions, energy infrastructure, or the crucial maritime corridor of the Strait of Hormuz, the economic and political repercussions for the United States, the Gulf, and global markets would escalate sharply.
In a post on Truth Social, Donald Trump warned Iran not to carry out any additional retaliatory strikes against the United States or its Middle East allies. He said Tehran had threatened large-scale attacks on neighboring countries seen as aligned with Washington.
The remarks suggest that Iran’s military capabilities remain operational despite the reported killing of its Supreme Leader, Ali Khamenei. The wave of retaliatory strikes indicates that Tehran has not been deterred by his death.
Iran reportedly targeted the United Arab Emirates, striking Dubai International Airport and the Burj Khalifa, the world’s tallest building. It also launched attacks on Bahrain’s capital, as well as Qatar and Kuwait. In response, several Gulf states have warned they may retaliate against Iran.
Qatar has shut down its main airport in Doha, while Dubai International Airport has also been closed following the strikes.
It remains uncertain whether Trump’s threat to respond with significantly greater force will deter further escalation. It is also unclear what he meant by saying, “We will hit them with a force that has never been seen before.”
Impact of the Conflict on Global Trade and the Energy Sector
Earlier today, we noted that the sudden closure of Dubai International Airport caused widespread flight cancellations due to its vital role as a global transit hub. Leading Gulf airlines — Emirates, Qatar Airways, and Etihad Airways — have suspended services indefinitely.
In addition, three major Japanese shipping companies have halted operations in the Gulf following a U.S. naval warning. These include Nippon Yusen (TYO:9101), Mitsui O.S.K. Lines (OTC:MSLOY), and Kawasaki Kisen Kaisha (TYO:9107).
Analysts at RBC Capital Markets say that U.S. strikes on Iran and Tehran’s counterattacks have created a cascading effect across the Gulf. The Strait of Hormuz is now viewed as “effectively closed,” disrupting roughly 20% of global LNG exports and about 90% of Japan’s crude oil imports.
They warn that crude oil prices could spike sharply as tensions intensify and diplomatic efforts remain stalled. Investors are advised to closely track developments in the region and assess their potential implications for oil and LNG markets.
Oil prices fell more than 1% in Asian trading on Monday, taking a breather after last week’s sharp rally, as investors assessed the likelihood of a third round of U.S.-Iran nuclear negotiations and renewed uncertainty around U.S. trade policy.
By 20:50 ET (01:50 GMT), Brent crude for April delivery dropped 1% to $71.03 a barrel, while WTI crude declined 0.9% to $65.75 a barrel.
Both benchmarks had climbed nearly 6% last week amid signs of a potential U.S.-Iran confrontation and an unexpected drawdown in U.S. crude inventories, which supported prices.
Traders watch third round of U.S.- Iran nuclear talks
Iran and the United States are expected to hold a third round of nuclear discussions on Thursday in Geneva, raising hopes that tensions may ease.
Iranian Foreign Minister Abbas Araghchi told CBS’s “Face the Nation” on Sunday that there is a strong possibility of reaching a diplomatic resolution, adding that an agreement is within reach. Markets viewed the remarks as a signal of potential compromise.
Iran is a major producer within OPEC and possesses some of the largest proven oil reserves globally. The country also borders the Strait of Hormuz, a vital chokepoint that handles about one-fifth of the world’s seaborne oil. Any escalation involving Iran could disrupt shipments and drive up freight and insurance costs.
Trump raises global tariffs to 15%
Meanwhile, U.S. President Donald Trump unveiled new global tariffs, initially imposing a 10% duty on imports for 150 days after the U.S. Supreme Court invalidated his previous, broader tariff plan.
The administration increased the rate to 15% on Saturday—the maximum permitted under the applicable law—adding fresh uncertainty to global trade and demand prospects.
Higher tariffs can strain supply chains and prompt retaliatory actions from trade partners. Slower trade activity and weaker industrial production typically weigh on fuel consumption.
Oil prices moved modestly higher in Asian trading on Friday, building on strong gains from the prior two sessions and putting major benchmarks on course for roughly a 6% weekly advance, as rising tensions between the U.S. and Iran heightened concerns about potential supply disruptions in the Middle East.
By 22:41 ET (03:41 GMT), Brent for April delivery climbed 0.2% to $71.81 a barrel, while West Texas Intermediate (WTI) crude rose 0.5% to $66.78 a barrel.
Both contracts were hovering near their highest levels since early August and were set to record weekly gains of more than 6%.
Oil near six-month high on US-Iran tensions
Investor anxiety has intensified after U.S. President Donald Trump warned Tehran that “bad things” could follow if a nuclear agreement is not reached within roughly 10–15 days, raising the possibility of military action.
According to a Wall Street Journal report, Trump is considering a limited strike on Iranian targets to pressure Tehran into accepting a nuclear deal.
Any escalation involving Iran — a key OPEC producer — could jeopardize shipments through the Strait of Hormuz, a vital passageway that handles about one-fifth of global oil trade, thereby increasing the market’s sensitivity to geopolitical risk.
This week’s rally also marked a rebound from earlier losses, when prices slipped at the start of the week on hopes that U.S.-Iran negotiations were making progress. The renewed tough rhetoric has since restored a geopolitical risk premium, pushing crude back toward multi-week highs.
US crude inventories drop sharply – EIA
Data from the U.S. Energy Information Administration on Thursday showed crude stockpiles fell by around 9 million barrels last week, defying expectations for a 1.7 million-barrel increase.
The report also indicated declines in gasoline and distillate inventories, both coming in below forecasts, suggesting solid demand from refiners and consumers.
Markets are now awaiting the release of the U.S. Personal Consumption Expenditures (PCE) Price Index later on Friday — the Federal Reserve’s preferred measure of inflation.
Following recent hawkish Fed minutes that signaled policymakers are in no rush to cut interest rates, the PCE data could offer additional insight into the central bank’s policy trajectory.
WTI prices could stage a rebound as supply concerns intensify amid escalating US-Iran tensions and stalled Ukraine-Russia negotiations.
Talks between Washington and Tehran have yielded little concrete progress, with Iranian officials only اشاره to a broad framework for a potential nuclear agreement, leaving uncertainty over future crude exports.
Meanwhile, peace discussions between Ukraine and Russia held in Geneva concluded without a breakthrough, sustaining geopolitical risks that may continue to underpin oil prices.
West Texas Intermediate (WTI) crude slips slightly on Thursday after plunging 4.9% in the previous session, hovering around $65.00 per barrel during Asian trading. Despite the recent drop, oil prices may find support from potential supply disruptions linked to rising US-Iran tensions and stalled Ukraine-Russia peace efforts.
Negotiations between Washington and Tehran remain unresolved. Iranian officials have pointed to a “general agreement” on the framework of a possible nuclear deal, but key differences persist. US Vice President JD Vance stated that Iran failed to meet Washington’s red lines, while US President Donald Trump reiterated that military action remains an option. Reports suggest that any potential US strike could develop into a prolonged campaign, with Israel advocating for an outcome aimed at regime change in Iran.
Meanwhile, peace talks in Geneva between Ukraine and Russia concluded without tangible progress, according to Reuters. Ukrainian President Volodymyr Zelenskiy accused Moscow of stalling US-backed diplomatic efforts to end the four-year conflict. Trump has urged Kyiv to consider a deal that could involve significant concessions, even as Russian forces continue attacking energy infrastructure and making battlefield advances.
On the trade front, India’s state-run Bharat Petroleum Corporation Limited (BPCL) reportedly made its first-ever purchase of Venezuelan crude, while HPCL Mittal Energy Limited resumed buying cargoes from Venezuela for the first time in two years.
In US inventory data, the American Petroleum Institute (API) reported a 0.609 million-barrel decline in weekly crude stocks, partially offsetting the previous week’s massive 13.4 million-barrel build — the largest increase since January 2023.
Oil prices moved sideways in Asian trading on Monday, as attention centered on renewed diplomatic engagement between the U.S. and Iran, with investors wary of possible supply disruptions in the Middle East.
Trading activity remained subdued due to public holidays in China and the U.S., while weak Japanese growth figures added to worries about slowing demand. Brent crude for April delivery slipped 0.2% to $67.65 per barrel by 21:15 ET (02:15 GMT).
U.S.– Iran nuclear talks to resume
The U.S. and Iran are set to hold a second round of discussions in Switzerland this week regarding Tehran’s nuclear program, following the restart of negotiations earlier in February. However, diplomatic efforts coincided with Washington deploying a second aircraft carrier to the Middle East and signaling readiness for extended military action should talks collapse.
President Donald Trump reiterated warnings that Iran must agree to a deal or risk further military measures. Over the weekend, Iranian officials indicated a willingness to make concessions on their nuclear activities in exchange for relief from tough U.S. sanctions, adding that the next move rests with Washington.
Tensions between the two countries have recently supported oil prices, as traders factored in a higher geopolitical risk premium amid fears of renewed conflict that could disrupt Iranian oil output.
OPEC+ considering renewed output increases
At the same time, some of oil’s geopolitical premium was tempered by a Reuters report suggesting that OPEC+ intends to restart production hikes from April. Higher output would enable member countries to capitalize on recent price gains, though increased supply could weigh on prices over the longer term.
The group is scheduled to meet on March 1.
Oil markets were pressured throughout 2025 by concerns of excess supply in 2026. Although OPEC+ gradually raised production last year, it paused further increases in December due to persistent oversupply worries.
Nonetheless, crude prices climbed to a six-month high in early 2026 amid escalating Middle East tensions, while signs of global economic resilience fueled expectations that demand would stay firm.
Oil prices slipped in Asian trading on Monday as the United States and Iran indicated they would continue negotiations over Tehran’s nuclear program, easing concerns about heightened tensions in the Middle East.
Crude prices were also weighed down by a firmer U.S. dollar ahead of a busy week of key U.S. economic data, extending losses after a roughly 2% decline last week. Investors are additionally awaiting major economic releases from China, the world’s largest oil importer.
Brent crude futures for April dropped 0.7% to $67.57 a barrel by 21:17 ET (02:17 GMT), while West Texas Intermediate futures also fell 0.7% to $63.12 a barrel.
U.S. and Iran agree to press ahead with nuclear negotiations
Washington and Tehran said over the weekend that indirect nuclear negotiations will continue following what both sides described as constructive talks in Oman on Friday.
The statements helped ease fears of an imminent military confrontation in the Middle East, particularly after the United States had earlier deployed several warships to the region.
Concerns over a potential conflict had previously pushed traders to build a higher risk premium into oil prices, with former President Donald Trump also issuing threats of military action against Iran.
However, the likelihood of a full-scale war in the region now appears reduced, even as Tehran indicated it will continue advancing its nuclear enrichment activities.
Markets await key U.S. and China economic data
Attention this week is also on a slate of major economic data from the world’s largest oil-consuming economies.
In the United States, January nonfarm payrolls figures are due on Wednesday, followed by CPI inflation data on Friday. These releases will be closely scrutinized for further signals on the interest-rate outlook, as markets continue to assess the direction of monetary policy under Warsh.
In China, January CPI data is also scheduled for release on Friday, providing fresh insight into conditions in the world’s biggest oil importer.
The data arrives just ahead of China’s week-long Lunar New Year holiday, which is expected to boost fuel demand across the country.
WTI prices rise amid growing supply concerns linked to escalating unrest in Iran.
President Trump has warned Tehran against using force on protesters, while Iran has warned the U.S. and Israel against any intervention.
However, oil price gains may be capped due to anticipated resumption of Venezuelan exports and forecasts of a potential market oversupply.
West Texas Intermediate (WTI) crude extended its gains for a third consecutive session, trading around $59.10 per barrel during Asian hours on Monday. The rise in oil prices is driven by growing supply concerns amid escalating protests in Iran. As OPEC’s fourth-largest producer, exporting nearly 2 million barrels per day, any conflict escalation poses a significant risk to global supply.
The unrest, now in its third week and having reportedly resulted in hundreds of casualties, has prompted Iranian authorities to signal a harsher crackdown. Meanwhile, U.S. President Donald Trump warned Tehran against using force on protesters and suggested possible intervention if the situation worsens, while Iranian officials cautioned against any U.S. or Israeli involvement.
Oil price gains may be restrained by expectations that Venezuelan crude exports could resume following political changes in the country, with the U.S. poised to receive or manage up to 50 million barrels of sanctioned oil under a new arrangement with interim authorities. This potential influx of supply has tempered some of the upside from geopolitical risk.
However, uncertainty remains over the timing and scale of Venezuelan shipments, as shifting U.S. policy and the logistics of restarting exports from dilapidated ports and vessels cloud the outlook for actual flows.
Meanwhile, traders are watching for possible supply disruptions from Russia amid ongoing Ukraine attacks on energy infrastructure and the prospect of tougher U.S. sanctions on Russian energy exports — factors that could add upward pressure on prices if they materially reduce output.
Tehran has declared it will attack Israel and U.S. military bases in the region if Washington intervenes militarily to support protesters in Iran.
Speaking before the Iranian Parliament today, Speaker Mohammad Baqer Qalibaf accused the U.S. and Israel of “supporting recent riots and causing unrest” across Iran. He warned that Israel and U.S. military bases in the region would be considered “legitimate targets” if the U.S. launches any attacks against Iran.
According to Reuters, Israeli authorities are currently on high alert due to the possibility of U.S. intervention to back the protest movement in Iran.
The New York Times quoted knowledgeable U.S. officials saying that in recent days, President Donald Trump has received reports on potential military interventions in Iran as he considers acting on his threats to attack the country over accusations of “suppressing protesters.”
While Trump has not made a final decision, officials indicate he is seriously weighing the possibility of launching strikes in response to Iran’s crackdown on demonstrations. Various options have been presented to the president, including attacks on non-military sites in Tehran.
According to sources, U.S. Secretary of State Marco Rubio spoke by phone with Israeli Prime Minister Benjamin Netanyahu on January 10 to discuss the protests in Iran, the situation in Syria, and the peace agreement in Gaza. Earlier that day, Rubio posted on social media expressing U.S. support for “the brave people of Iran.”
When asked about the New York Times report, the White House referred to President Trump’s recent public statements and social media posts.
“Perhaps Iran is closer to freedom than ever before. America is ready to help,” Trump wrote on social media on January 10.
The day before, he warned of “very strong” retaliation if Iran causes protester deaths as in previous incidents. He noted the demonstrators in Iran face “extreme danger” and said the U.S. will closely monitor developments.
“Iran better not start shooting because if they do, we will shoot back,” Trump said, but emphasized this did not mean American troops would directly deploy to Iran.
The protests, which began on December 28, 2025, sparked by small traders upset over the economic situation and the falling rial, have spread in Tehran and other cities in recent days. Iranian officials accuse “terrorist agents” from Israel and the U.S. of inciting the protests and escalating violence, claims denied by the U.S. State Department, which says Tehran is “distracting attention from internal problems.”
International organizations citing local sources report that the Iranian government has blocked nationwide information flow, cut Internet access, and limited international communications, making it difficult to assess the full scope of the protests. Some human rights groups abroad report over 100 protesters have died and more than 2,000 have been arrested since late December 2025.
Iran’s Supreme Leader Ali Khamenei declared that the government will not back down before the protests, claiming that the past two weeks of unrest are caused by agitators aiming to please the U.S. leadership. He mocked Trump’s intervention warnings, urging the U.S. president to focus on domestic issues.
Iranian Judiciary Chief Gholamhossein Mohseni Ejei warned of “severe, maximum, and merciless” punishment for rioters, while the intelligence branch of the Islamic Revolutionary Guard Corps (IRGC) vowed not to allow the protests to continue.
THE ETERNAL SOVEREIGN 