Global Markets Rattle as Israel–Iran Conflict Escalates, Oil Prices Soar

Global financial markets are facing heightened volatility as tensions between Israel and Iran escalate into direct military confrontation. Over the weekend, Israel launched targeted strikes within Iranian territory, prompting a swift retaliation from Tehran under the banner of “Operation True Promise III,” which included a barrage of missiles and drones targeting key sites in Israel.

Oil prices reacted sharply, with Brent crude surging more than 10% over three sessions to briefly surpass $95 per barrel—its highest level since January. Analysts fear a prolonged conflict could threaten critical oil transit routes, particularly the Strait of Hormuz, which is vital for nearly 20% of global petroleum shipments. The sudden spike in oil prices has reignited concerns over inflation and the broader implications for global economic stability.

In equity markets, the impact has been mixed. Major U.S. indices ended lower, with the Dow Jones Industrial Average down 1.8%, the S&P 500 falling 1.3%, and the Nasdaq declining 1.1%. Defensive sectors such as energy and defense outperformed, while risk-sensitive technology and consumer discretionary stocks led the losses. Meanwhile, safe-haven assets surged. Gold rose above $2,050 per ounce, U.S. Treasury yields declined, and the dollar strengthened against most major currencies. The VIX, a key measure of market volatility, spiked 15% to its highest level in over a month.

Asia-Pacific markets were relatively resilient. Japan’s Nikkei 225 climbed 1.2%, and the MSCI Asia-Pacific ex-Japan index rose 0.3%, with investors showing some risk appetite despite global uncertainty. Indian markets showed particular strength, with the Sensex jumping over 500 points, buoyed by strong performances from large-cap IT firms and domestic institutions.

The geopolitical escalation adds a fresh layer of complexity ahead of several key central bank meetings this week. The U.S. Federal Reserve, European Central Bank, and Bank of Japan are all scheduled to review interest rates and policy guidance. With inflation risks potentially re-emerging due to surging energy prices, markets are now reassessing the monetary policy outlook. Economists warn that central banks may face increasing difficulty balancing inflation control with the need to maintain financial stability amid geopolitical tensions.

Investor sentiment remains fragile as market participants brace for further developments in the Middle East. While the situation could stabilize, the risk of a broader regional conflict remains elevated. In the meantime, traders are pivoting toward safer assets and sectors with inflation protection, such as energy, defense, and gold. The coming days are expected to bring continued volatility as geopolitical headlines dominate the financial narrative.