Middle East tensions have investors on high alert as the US considers deepening its involvement in the conflict between Israel and Iran. Crude oil prices have surged sharply, with Brent crude futures rising by 18% since June 10, hitting a near five-month high of $79.04. The price increase is driven by fears of supply disruptions, which could lead to higher inflation and dampen consumer confidence.
Analysts warn that if the US joins the conflict, it could lead to an initial selloff in equities and a safe-haven bid for the dollar. However, some experts argue that oil prices will continue to rise, driving inflation near 6% by the end of the year. The potential impact on stocks is uncertain, but history suggests that markets tend to recover from Middle East tensions.
The White House has announced that President Donald Trump will decide on US involvement in the conflict within two weeks. Israeli officials have expressed frustration with the delay and warned that Israel could act alone before the deadline. Analysts at Oxford Economics have modeled three scenarios, including a de-escalation of the conflict, complete shutdown of Iranian production, and closure of the Strait of Hormuz, each with increasingly large impacts on global oil prices.
The escalating conflict has primarily affected the energy sector, with oil prices leading the charge. However, investors’ expectations for volatility in other asset classes, such as stocks and bonds, are expected to follow suit if worst-case scenarios materialize. The dollar is poised to benefit from a safety bid initially but may weaken in the long term due to concerns about US exceptionalism.
As the situation continues to unfold, investors are taking a cautious approach, focusing on oil commodity pricing and the potential impact of Middle East tensions on global markets.
Source: https://www.reuters.com/business/energy/middle-east-tensions-put-investors-alert-weighing-worst-case-scenarios-2025-06-21