The United States and Israel’s military attacks on Iran showed no sign of abating, as the Arab nation responded with missile strikes across the region, risking drawing its neighbors into the conflict.President Donald Trump suggested to the Daily Mail that the conflict could last another four weeks, writing that attacks would continue until U.S. objectives were achieved.
All eyes were on the Strait of Hormuz, where about a fifth of the world’s seaborne oil trade and 20% of liquid natural gas flows. Although the vital waterway has not yet been blocked, marine tracking locations showed tankers piling up on either side of the strait, wary of attack or perhaps unable to obtain insurance for the journey.
“The most immediate and tangible development affecting oil markets is the effective halt to traffic through the Strait of Hormuz, preventing 15 million barrels of crude oil per day from reaching markets,” said Jorge Leon, head of geopolitical analysis at Rystad Energy.
“Unless de-escalation signals emerge soon, we expect a significant upward repricing of oil prices.” A prolonged spike in oil prices would risk reigniting inflationary pressures globally, while also acting as a burden on businesses and consumers that could dampen demand.
OPEC+ agreed on Sunday a modest oil production increase of 206,000 barrels per day for April, but a large part of that product still has to leave the Middle East by tanker.
“The closest historical analogy, in our view, is the Middle East oil embargo of the 1970s, which sent oil prices soaring 300% to about $12/bbl in 1974,” says Alan Gelder, SVP of refining, chemicals and oil markets at Wood Mackenzie.
“That’s just $90 a barrel in 2026. It seems very feasible to eclipse this in today’s market concerned about significant supply losses.”
That would be expensive for Japan, which imports all its oil, sending the Nikkei down 2.3%, with airlines among the hardest hit. South Korea lost 1.0%, after rising rapidly so far this year.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%.
AND IT’S A BIG DATA WEEK FOR THE US
For Europe, EUROSTOXX 50 futures fell 1.9% and DAX futures fell 1.8%. On Wall Street, S&P 500 futures and Nasdaq futures both lost 1.1%.
The oil shock rippled through the currency markets, with the dollar being the main beneficiary. The US is a net energy exporter and government bonds are still seen as a liquid haven in times of stress, sending the euro down 0.4% to $1.1768.
Although the Japanese yen is often a safe haven, the country imports all its oil, making flows more bidirectional. The dollar added 0.3% to 156.55 yen, gaining sharply against the Australian dollar, which is often sold as a liquid measure of global risk.
In bond markets, 10-year government bond yields fell 2 basis points to a three-month low of 3.926%, after falling below 4% last week for the first time since late November.
Bonds were on the receiving end of a bid on Friday as British mortgage lender MFS was placed into administration following allegations of financial irregularities. The collapse fueled credit fears, with well-known big banks among the lenders. MFS had lent 2 billion pounds ($2.69 billion).
The news negatively impacted bank stocks and, combined with the turmoil over AI-related stocks, had a broader impact on Wall Street.
Investors also had to deal with a barrage of US economic data this week, including the ISM survey on manufacturing, retail sales and the ever-crucial payroll report.
Any weakness could shake confidence in the economy after a disappointing fourth quarter, but would also likely reduce the chances of rate cuts from the Federal Reserve.
Markets currently imply a 53% chance of an easing in June and a cut of around 60 basis points this year.
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