Global Markets Brace for Turmoil as US-Israel Strikes on Iran Spark Fears of Wider Conflict
Global financial markets are preparing for heightened volatility after the United States and Israel carried out strikes on Iran, triggering fears of a wider conflict in the Middle East and potential disruptions to global energy supplies. The situation escalated as Tehran retaliated by launching missiles towards Israel, intensifying concerns among investors and oil producers across the region.
Oil Markets Take Centre Stage Amid Geopolitical Stress
Oil prices remain the most immediate indicator of geopolitical stress. Iran's strategic location along the Strait of Hormuz, through which roughly 20% of global oil supply flows, makes any regional conflict a direct risk to energy markets. Brent crude was trading near $73 per barrel on Friday, its highest level since July and already up sharply this year.
Following the attacks, several oil majors and trading firms suspended shipments through the Strait of Hormuz, according to multiple trading sources. William Jackson, chief emerging markets economist at Capital Economics, noted that Brent could climb to about $80 even if tensions remain contained. However, a prolonged disruption could push prices towards $100 per barrel, potentially adding 0.6–0.7 percentage points to global inflation.
Volatility Risks Rise Across Multiple Asset Classes
The escalation threatens to amplify market swings already driven by trade tensions and a global technology-sector selloff earlier this year. The VIX volatility index has climbed by roughly one-third in 2026, while implied volatility in US bond markets has risen about 15%.
Currency markets are also expected to react significantly. Analysts at Commonwealth Bank of Australia observed that during previous conflicts involving Iran, the dollar index briefly weakened before stabilising within days. They noted that the size of any currency movements will depend on how large and how long-lasting the conflict is expected to be.
A sustained disruption to oil supply could instead strengthen the US dollar against most currencies, except traditional safe havens such as the Japanese yen and Swiss franc.
Israel's shekel is another closely watched currency. It fell sharply at the start of previous regional conflicts before rebounding, though financial institutions warn that prolonged hostilities could produce a more lasting impact this time, especially if confrontation with Iran triggers more intensive operations against Iran's proxies.
Safe-Haven Demand Builds as Investors Seek Stability
Investors are increasingly shifting toward defensive assets amid the uncertainty. The Swiss franc, widely viewed as a safe haven, has already gained about 3% against the US dollar this year and may strengthen further. Gold, which has surged 22% in 2026, could attract additional inflows alongside silver. US Treasury bonds are also expected to benefit as investors seek stability.
Interestingly, Bitcoin has not behaved like a traditional hedge during this crisis. The cryptocurrency slipped 2% on Saturday and has declined more than 25% over the past two months, demonstrating its divergence from conventional safe-haven assets.
Gulf Markets Under Scrutiny for Early Sentiment Signals
Attention has turned to Middle East stock exchanges for early signals of investor sentiment. Markets in Saudi Arabia and Qatar began trading Sunday, while Dubai reopens Monday. Financial experts estimate Gulf equities could fall between 3% and 5% depending on how the conflict evolves.
Saudi Arabia's benchmark index had already declined 1.3% over the previous five trading days, extending recent losses even before the latest escalation.
Sector-Specific Impacts: Airlines Under Pressure, Defence Stocks Gain
The conflict is creating divergent impacts across different sectors. Airlines have cancelled flights across parts of the Middle East, raising the risk of further pressure on aviation stocks if airspace disruptions expand. Defence companies, by contrast, may benefit from the heightened tensions.
European weapons manufacturers, already up about 10% this year, could see stronger demand amid rising geopolitical tensions. This sectoral divergence highlights how different industries respond to conflict scenarios.
With oil flows, currencies and regional equities reacting first, investors are watching closely to gauge whether the latest escalation remains contained or develops into a broader market-moving crisis. The situation remains fluid, with market participants preparing for various scenarios as diplomatic and military developments continue to unfold.
