Markets Rattled by Mideast War
Global markets are reeling from the escalating U.S.-Iran conflict, with oil prices surging more than 14% on fears of supply disruption. While U.S. stocks have been volatile, gold has risen as investors flee to safe-haven assets. U.S. manufacturing data from February showed a surge in factory gate inflation, signaling that the economic fallout may just be beginning.
The recent conflict is rooted in a long history of tensions, escalating significantly after a 12-day war between Iran and Israel in June 2025. Despite a ceasefire, diplomatic talks in early 2026 failed to produce a breakthrough, leading to the current U.S. and Israeli military operations that began on February 28, 2026. The surge in oil prices, while significant, is not unprecedented. For comparison, the 1973 Arab oil embargo saw U.S. crude prices rise by over 90%, and the 1979 Iranian Revolution led to a surge of more than 110%. The current 14% jump in oil prices reflects fears of a disruption to the Strait of Hormuz, a critical channel for about 20% of the world's oil supply. Gold, a traditional safe-haven asset, has seen its price climb to around $5,400 per troy ounce following the initial strikes. This reflects a broader flight to safety by investors amid the geopolitical uncertainty. During past Middle East conflicts, such as the 1973 oil crisis and the 1979 revolution, gold prices saw even more dramatic increases of nearly 140% and 150%, respectively. The February U.S. manufacturing data from the Institute for Supply Management showed the sector expanding for the second consecutive month with a PMI of 52.4. However, the prices paid by factories surged to their highest level in nearly three and a half years, with the index jumping to 70.5. This increase was largely driven by higher costs for steel and aluminum, as well as the impact of ongoing tariffs. The risk of a global recession is a significant concern, with economists presenting various scenarios. A short-lived conflict with minimal disruption to oil supplies might only have a limited impact on global growth and inflation. However, a prolonged closure of the Strait of Hormuz could push oil prices to $120 a barrel or higher, which analysts warn would severely damage global growth and could trigger a recession.
