Iran Conflict Market Impact Halts Rally, Spurs Oil Spike

Iran conflict market impact intensified after U.S. and Israeli airstrikes on Feb. 28 targeted Iranian military and leadership sites, prompting Iranian rocket and drone reprisals and a sharp rise in oil prices and broader market turbulence that paused a recent equity rally.

Oil Price Spike and Inflation Pressure

Between Feb. 27 and the March 1 market open, Brent crude surged, reflecting heightened commodity-market stress as traders priced in near-term supply risks. Analysts estimate a 5–10% rise in crude would add about 0.1–0.3 percentage point to headline inflation in the U.S. and euro area, creating a near-term inflation impulse. Gas and liquefied natural gas (LNG) markets were initially only modestly affected despite Qatar halting LNG output, underscoring regional sensitivity in gas flows. While a closure of the Strait of Hormuz is considered unlikely, it remains a tail risk that could disrupt Iranian exports to China.

Market Volatility and Outlook

The airstrikes targeted Iran’s ballistic missile capabilities, naval infrastructure, nuclear sites, and leadership. Supreme Leader Ayatollah Ali Khamenei was killed, and the Iranian Red Crescent reported more than 200 deaths nationwide, highlighting the operation’s scale and political impact.

Iran retaliated within roughly four hours with rocket and drone attacks on Israel and U.S. bases in Bahrain, Qatar, the UAE, Kuwait, and Jordan. Regional air defenses intercepted many projectiles. President Donald Trump urged Iranian troops to surrender and civilians to challenge the regime, suggesting the conflict could last four to five weeks. Analysts set a base-case duration of one to three weeks, with a severe scenario extending up to two months, marking this episode as larger and more intense than the region’s shorter 2025 confrontation.

Markets responded with a pause in the recent equity advance and rotations into traditional safe havens such as U.S. Treasuries, the dollar, gold, and the Swiss franc. Emerging-market debt is seen as regionally vulnerable if the conflict escalates. Central banks may adopt a dovish stance if tighter financial conditions and rising energy costs weigh on growth, even as the European Central Bank and Bank of England remain cautious about any energy-driven inflation impulse. The conflict’s duration and the normalization of shipping and LNG flows will determine whether the shock remains short-lived or affects broader inflation and growth outcomes.