The recent military strikes on Iran by the U. S. and Israel have introduced a new wave of uncertainty into the global markets. With Iran being a major oil producer, and the Strait of Hormuz serving as a critical passage for about 20% of global oil supply, the conflict has the potential to significantly impact energy markets. Some oil majors have already suspended shipments through the Strait of Hormuz due to the attacks.
The immediate effect has been a surge in oil prices. Brent crude, already up by a fifth this year, is expected to climb further. Some analysts predict that if the conflict remains contained, Brent might rise to $80 a barrel, a level seen during the 12-day war in Iran last June. However, a prolonged conflict disrupting supply chains could push prices to around $100, potentially adding 0.6-0.7 percentage points to global inflation. Despite these concerns, some analysts believe that global supply growth continues to outpace demand, and inventories are expected to build in 2026, mitigating the risk of a 1970s-style oil shock.
Beyond oil, the conflict is expected to increase volatility across various markets. Currency markets are also anticipated to be affected. While the dollar index experienced a decline during the June war, some analysts suggest that investors might move into dollar-denominated positions as a safe haven, while others anticipate a move towards European, Japanese, and Swiss-denominated assets.
The situation remains fluid, and market participants are closely monitoring developments. The extent of the conflict and the response from Iran will be key determinants in shaping market reactions in the coming days and weeks. Investors are advised to remain cautious and diversify their portfolios to mitigate potential risks.
