Rising tensions between Iran and the West have been simmering for months, with periodic attacks and harsh rhetoric in 2025 signaling a dangerous drift toward escalation. That slow burn ignited on February 28th with the joint U.S.–Israel strike that killed Iran’s Supreme Leader, sending markets into turmoil. (Al Jazeera). Since then, global markets have dropped and oil prices spiked, reaching nearly $120/barrel on March 9th before retreating back to $87 by the day’s end (StockCharts).
Messaging on both sides of the conflict provide little clarity, with Trump noting that “. . . the war is very complete, pretty much” and that the U.S. is “very far” ahead of schedule in their operation (CNBC). Meanwhile, Iran has noted that it is ready for a long war and will continue to attack energy infrastructure and military targets in neighboring countries to inflict economic pain globally (CNN). Both sides will likely continue to assert their positions of strength until one side either yields or presses for a ceasefire.
Much like the “tariff tantrum” of 2025, we find ourselves once again in an event-driven market in which global assets are swinging and swooning with each headline. We won’t pretend to know what will happen over the near term, but we are keenly aware of the risks of a drawn-out conflict. Specifically, an extended engagement in the Gulf that results in disabled energy infrastructure would most likely cause energy prices to rise and stay elevated, triggering a wave of global inflation. Economies can usually handle some inflation, especially over short time horizons, but prolonged higher prices can cause economic stress and potentially even recession (Morningstar).
While the end-date and ultimate resolution of the conflict is unknown, here are some policy paths likely in consideration to provide economic relief in the face of higher energy prices:
- Strategic Petroleum Reserve (SPR) releases – The Strategic Petroleum Reserve was created in 1977 and has been used to mitigate energy supply disruptions since (Department of Energy). The amount of crude oil in the SPR is currently at multi-decade lows (Department of Energy), but some policy makers are still pushing for releases to ease pain at the pump. Overall, we view SPR releases as a short-term solution that would only modestly impact the cost of energy.
- Reinvigorating Venezuela’s oil infrastructure and production – Oil production in Venezuela plummeted by over 50% from 2015 through present (Congress), caused by a combination of economic sanctions, local mismanagement, and decaying infrastructure. It’s Trump’s hope that the new regime, aided by foreign investment, will be able to drastically increase production. This, however, will take time and likely not impact fuel prices over the near term.
- Military escorts in the Strait of Hormuz: The idea of providing military escorts to oil tankers through the Strait of Hormuz has been floated, but this idea is risky. Specifically, this potentially opens the door for escalation, as a well-placed sea mine or missile could damage or sink a vessel, military or civilian.
Of course, the optimal path to economic relief is de-escalation and ultimately a ceasefire. The likelihood of this occurring over the near term may be that of a coin flip. Longer term, however, politicians know that Americans don’t want an “Iraq 2.0” and will likely take steps to ensure the conflict isn’t drawn out, and especially during a mid-term election year.
We will continue to monitor the situation daily for signs of escalation/de-escalation as well as indications that combat may be affecting the health of the global economy. For now, longer term market risk appears to be contained, and recent stock declines should likely be viewed as pullbacks within an ongoing global bull market. And, once calmer skies return, we expect the global uptrend in stocks will resume.
Iran Conflict and Market Volatility: What Investors Should Know
Rising tensions between Iran and the West have been simmering for months, with periodic attacks and harsh rhetoric in 2025 signaling a dangerous drift toward escalation. That slow burn ignited on February 28th with the joint U.S.–Israel strike that killed Iran’s Supreme Leader, sending markets into turmoil. (Al Jazeera). Since then, global markets have dropped and oil prices spiked, reaching nearly $120/barrel on March 9th before retreating back to $87 by the day’s end (StockCharts).
Messaging on both sides of the conflict provide little clarity, with Trump noting that “. . . the war is very complete, pretty much” and that the U.S. is “very far” ahead of schedule in their operation (CNBC). Meanwhile, Iran has noted that it is ready for a long war and will continue to attack energy infrastructure and military targets in neighboring countries to inflict economic pain globally (CNN). Both sides will likely continue to assert their positions of strength until one side either yields or presses for a ceasefire.
Much like the “tariff tantrum” of 2025, we find ourselves once again in an event-driven market in which global assets are swinging and swooning with each headline. We won’t pretend to know what will happen over the near term, but we are keenly aware of the risks of a drawn-out conflict. Specifically, an extended engagement in the Gulf that results in disabled energy infrastructure would most likely cause energy prices to rise and stay elevated, triggering a wave of global inflation. Economies can usually handle some inflation, especially over short time horizons, but prolonged higher prices can cause economic stress and potentially even recession (Morningstar).
While the end-date and ultimate resolution of the conflict is unknown, here are some policy paths likely in consideration to provide economic relief in the face of higher energy prices:
Of course, the optimal path to economic relief is de-escalation and ultimately a ceasefire. The likelihood of this occurring over the near term may be that of a coin flip. Longer term, however, politicians know that Americans don’t want an “Iraq 2.0” and will likely take steps to ensure the conflict isn’t drawn out, and especially during a mid-term election year.
We will continue to monitor the situation daily for signs of escalation/de-escalation as well as indications that combat may be affecting the health of the global economy. For now, longer term market risk appears to be contained, and recent stock declines should likely be viewed as pullbacks within an ongoing global bull market. And, once calmer skies return, we expect the global uptrend in stocks will resume.
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