Markets Waver as Mideast War Continues
Global markets are on edge as the Iran conflict continues, with U.S. stocks closing lower on Tuesday amid the volatility. Oil prices initially spiked on fears of supply disruption but later eased slightly. Analysts say equities haven't collapsed because of expectations for policy support, but note the market is "pricing in volatility" and could see a sharp correction if the conflict escalates further.
The market turmoil extended far beyond Wall Street, triggering a global sell-off. In Asia, South Korea's Kospi index plunged 7.2%, while Japan's Nikkei 225 dropped 3.1%. London's FTSE 100 index saw its most significant one-day fall in nearly a year, closing 2.75% lower. Brent crude, the international oil benchmark, has surged 12% since the conflict began, settling at its highest price since January 2025. A key driver of this spike is the disruption to the Strait of Hormuz, a critical shipping lane on Iran's southern border through which about 20% of the world's oil supply normally passes. Iran has largely halted its own oil and gas exports through the strait and has threatened ships attempting to transit the waterway. In response, insurers have reportedly canceled coverage for vessels in the area, and shipping rates have soared, effectively choking off a major artery for global energy. The conflict escalated following U.S. and Israeli airstrikes on Iran beginning February 28, which killed Supreme Leader Ayatollah Ali Khamenei. The U.S. military reports striking nearly 2,000 targets in Iran, while Tehran has retaliated with hundreds of missiles and drones, widening the conflict to include Lebanon and striking targets in the Gulf. The surge in energy costs is fueling fears of a new wave of global inflation. The International Monetary Fund has warned that the crisis adds to an "already uncertain" global economic environment. This spike could disrupt plans by central banks, including the Federal Reserve, to cut interest rates. European markets have been hit particularly hard due to their heavy reliance on Middle Eastern energy. Natural gas prices in Europe have jumped significantly, compounded by attacks that led Qatar to halt production at a major facility. Historically, the initial market shock from geopolitical events often subsides. An analysis of 40 past conflicts shows the S&P 500, on average, recovered its losses within six months. Analysts note, however, that a prolonged and direct impact on energy supplies could break from this historical pattern.
