Middle East Tensions Spike Volatility

The conflict between the US, Israel, and Iran is disrupting energy markets, particularly through the Strait of Hormuz, a critical route for about 20% of global oil and LNG shipments. This disruption is causing significant volatility in commodity markets. Oil prices have surged, exceeding $90 per barrel for the first time since 2023, and briefly hitting $100. Natural gas prices also spiked after Qatar LNG production was halted. The rise in energy prices is adding pressure to the near-term inflation outlook, especially for energy-importing countries in Europe and Asia. The rise in prices may force central banks to make difficult choices regarding monetary policy. Rising oil prices create a risk of stagflation, where higher inflation is coupled with slower economic growth. The VIX, a measure of market volatility, has climbed to levels not seen since April 2025, reflecting investor anxiety. Investors are hedging against uncertainty, and the market believes the conflict may be short-lived. Beyond economics, the conflict is causing a humanitarian crisis with rising injuries and displacement. Health systems are under strain, and attacks on healthcare facilities have been reported.