US-Iran Tensions Rattle Global Markets
Renewed U.S. military action against Iran has rattled global markets, with investors adopting a risk-off tone. The move has caused sharp swings in commodity prices and investor sentiment, with central banks now expected to maintain policy rates in March amid the geopolitical escalation.
The joint U.S.-Israeli military operation on February 28, dubbed "Operation Epic Fury," involved a significant salvo of ship-launched Tomahawk cruise missiles and munitions from Air Force and Navy jets. The stated goals were extensive, including the destruction of Iran's missile programs and navy, with President Trump also citing the goal of "freedom" for the Iranian people and announcing the death of Supreme Leader Ayatollah Ali Khamenei. Iran launched immediate retaliatory missile strikes, not only against Israel but also at U.S. military bases located in at least five other Gulf nations. Missiles were reportedly intercepted over Jordan and Iraq, with impacts confirmed in Bahrain, Qatar, and the United Arab Emirates, striking buildings and a hotel. The escalation sent immediate shockwaves through energy markets, with Brent crude prices jumping over 3%. Analysts now forecast a potential geopolitical risk premium of $20–$40 per barrel, which could push oil prices into the $95–$110 range. Prior to the attack, West Texas Intermediate crude was trading around $67 a barrel. The conflict places a intense focus on the Strait of Hormuz, a narrow waterway through which about 20% of the world's total oil consumption—roughly 20 million barrels per day in 2024—passes. A sustained blockage of this critical chokepoint could drive oil prices well above $120 per barrel. Global reaction to the military action has been sharply divided. While nations like Canada and Australia expressed support for the U.S. action, China and Russia condemned the strikes and backed Iran. Key European allies, including the U.K., France, and Germany, distanced themselves from the operation without issuing a direct condemnation. The UN Security Council held an emergency session where Secretary-General António Guterres labeled the events a "grave threat to international peace and security." Iran's ambassador to the UN called the attack an "unprovoked and premeditated aggression" and a "war crime." Central banks were already on high alert due to rising geopolitical tensions before the strikes. The U.S. Federal Reserve is expected to hold its policy rate steady at its March 18 meeting, but all eyes will be on its guidance in light of the conflict. The European Central Bank has also recently highlighted that geopolitical shocks are a key risk to financial stability. The majority of oil transiting the Strait of Hormuz is destined for Asia, with China, India, Japan, and South Korea receiving a combined 69% of crude oil flows. These nations are particularly vulnerable to supply disruptions, with Japan and South Korea relying on fossil fuel imports for over 80% of their total energy usage.
