With the Israeli-US military campaign against Iran ending its second week, financial markets are grappling with what the long-term consequences might be. For now, markets are not pricing in the worst-case scenarios, despite the International Energy Agency (IEA) describing the situation as the largest disruption to oil supply in world history.
Iran’s effective closure of the Strait of Hormuz has blocked roughly 20% of global oil supply, and a drone strike on Qatar’s main liquid natural gas export facility has taken close to a fifth of global gas supply offline. Energy prices have been volatile since then but have not yet settled at the extremes one might expect when viewed in a historical context.
By comparison, inflation-adjusted Brent crude hit $179 after the Iranian revolution in 1979, $155 when Iraq invaded Iran in 1980, and $130 after Russia invaded Ukraine in 2022. That suggests markets are not, for now, pricing in an indefinite closure of the strait, a scenario that some analysts suggest could push prices above $150
Crude prices briefly peaked at nearly $120, then plunged to $80 a barrel on Monday after US President Donald Trump suggested the campaign would soon be over. But when rhetoric on both sides became more belligerent again, and the strait remained closed, oil climbed back to around $100.
The largest release of oil reserves in the IEA’s history was one factor that helped to calm oil markets, but it is seen as a short-term measure. The IEA announced its member countries will release 400 million barrels of crude oil from emergency stockpiles to temper supply disruptions from the war.
US equity markets, too, reflect anxiety rather than outright panic. At the time of writing, the S&P 500 is down 3% since the start of the war. That is enough to push the index into the red at 2.5% for the year to date, but it is a blip compared to the Liberation Day crash in April 2025, when the S&P 500 fell by more than 11% over five days.
The impact on European and Japanese equities markets has been similarly muted. Among emerging markets, China and Brazil have been surprisingly resilient. India, Turkey, South Africa and other emerging markets that are significant net importers of crude have taken a harder knock.
The US dollar has reasserted its safe-haven status, with the dollar index climbing 1.8% this month. The dollar index gained nearly 1% on the first day of the conflict alone, erasing its losses for the year. Emerging market currencies have broadly declined, hit by the double whammy of higher oil prices and rising bond yields.
Gold, somewhat counterintuitively, is down 3.6% since the start of the war and has been trading in a narrow band between $5,050 and $5,200. The core reason for it not rising is renewed dollar strength. In an environment where some market participants are pricing in deferred rate cuts, some investors are turning to cash rather than gold. Goldman Sachs has pushed back its forecast for the next Fed rate cut from June to September.
The measured market response reflects a collective view that the conflict will be short-lived. In a second year of lurching from crisis to crisis under Trump’s second White House term, investors have become somewhat inured to risk. Markets are accustomed to brinkmanship and volatility, and they hope Trump will declare victory and move on.
If the war is brought to a close within weeks rather than months, oil prices would be expected to fall relatively quickly, and supply chains would recover fast. A sense of stability would return to the Gulf countries, which are also major transport and finance hubs, in addition to their importance as oil suppliers.
But there are reasons to be cautious. Iran’s newly elected Supreme Leader, Mojtaba Khamenei, is keeping pressure on Israel and the US. He has vowed to keep the Strait closed and threatened to broaden the conflict into new theatres. There is thus no guarantee that the new Iranian regime will be ready to cease the conflict on Trump’s terms.
If the war proves to be protracted, the consequences could be severe. Higher energy prices and supply chain disruptions could reignite inflation and force central banks to defer interest rate cuts or even hike rates. This would create a risk-off environment that would weigh heavily on equities and, in particular, emerging market assets and currencies.
The broader reaction suggests investors view the conflict as non-enduring. That may prove to be a reasonable judgment if the fighting ends quickly and shipping resumes through the Strait of Hormuz. But if the closure persists and the war widens, the gap between geopolitical reality and market pricing could close abruptly.
“As the conflict intensifies, the oil market is like the proverbial frog in a saucepan of gradually heating water. The water isn’t boiling yet, but it’s getting hotter by the day.”
– Wood Mackenzie analysts
“There’s just going to be more headline risk in the market, more choppiness, until there’s more details on the timeline here.”
– Adam Turnquist, chief technical strategist at LPL Financial
Global News
- The IEA said on Thursday that the US-Iran war has triggered the largest supply disruption in oil-market history, with supply expected to fall by about eight million barrels a day this month, roughly 7.5% of global output, as the Strait of Hormuz faces severe shipping disruptions. The conflict highlights how dependent the world economy remains on Middle Eastern energy flows and how quickly geopolitical tensions can destabilise markets, supply chains and trade. Even if the fighting eases, the crisis is expected to force governments to reconsider energy security and economic resilience.
- Member countries, including the US, Japan, the UK, Germany, France and South Korea, have agreed to release a record 400 million barrels from strategic reserves to stabilise markets. The volume far exceeds the 183 million barrels released in 2022, following Russia’s invasion of Ukraine. Trump also temporarily lifted sanctions on Russian oil that is currently at sea to help contain fuel prices. Global crude consumption is slightly more than 100 million barrels a day.
- Khamenei said yesterday that the Strait of Hormuz should remain closed and warned that Tehran could open new fronts in the war if US and Israeli attacks continue. Trump responded on social media, saying preventing Iran from obtaining nuclear weapons is “of far greater interest and importance to me” than the cost of oil. Trump had warned on Monday that Washington would escalate attacks if Iran attempted to block oil shipments through the waterway, though he also suggested the conflict could end sooner than his earlier four-week timeline. Iran’s Revolutionary Guards replied that Tehran will decide when the war ends.
- A growing “blame-Israel” narrative is emerging within parts of the MAGA movement in the US, suggesting that if the war with Iran turns unpopular or costly, political pressure may shift toward blaming Israel rather than Trump for the conflict. According to an editorial in The Economist yesterday, some conservative commentators argue that Israel pushed Washington into confrontation, creating a potential political escape route for Trump if the war damages his standing ahead of elections. The debate reflects broader tensions inside the Republican coalition over US support for Israel and highlights how domestic political calculations may shape how the administration frames responsibility for the war’s outcome.
- Recent polls show Americans are divided along party lines over US military action against Iran, with opposition generally exceeding support. A Quinnipiac survey conducted over the weekend found that 53% of voters oppose the airstrikes, while about 40% support them. Republicans largely backed Trump, and Democrats and independents mostly opposed the war.
- Goldman Sachs said on Wednesday that the current hedge fund positioning could set the stage for an “extreme” rally in US stocks despite recent market volatility. According to the bank’s prime brokerage data, hedge funds have largely maintained bullish positions in individual equities while building hedges through short bets on exchange-traded funds and index futures, pushing short exposure to its highest level since September 2022. The positioning reflects investor caution amid geopolitical uncertainty, including the war with Iran, but Flood said it also creates the potential for a sharp rebound if sentiment improves and investors unwind those short hedges.
- The Iran war has exposed the fragility of modern travel, disrupting global aviation networks as airspace closures across parts of the Middle East force airlines to cancel flights and reroute aircraft. Carriers that rely on regional hubs such as Dubai and Doha to connect long-haul routes between Europe, Asia and Africa have been particularly affected. The disruption is raising operating costs and highlighting the vulnerability of the global airline hub-and-spoke model to geopolitical shocks. More than 46,000 flights to and from the Middle East were cancelled between 28 February and 11 March, according to Cirium data released yesterday.
- US consumer prices rose in line with expectations in February at 0.3%, leaving annual inflation at 2.4%, data from the Bureau of Labor Statistics showed on Wednesday. This is exactly on par with a Wednesday Reuters poll. Core inflation, which excludes food and energy, rose 0.2% in February and remained at 2.5% year-on-year. The data offered a final snapshot of inflation before the oil shock linked to the Iran war, which could push prices higher in the coming months.
- Applications for US unemployment benefits fell by 1,000 to 213,000 in the week ended 7 March, according to Labor Department data released on Thursday, slightly below the 215,000 forecast by economists. The figures remain within the narrow range seen this year, indicating layoffs are still limited despite economic uncertainty. The data point to a broadly stable labour market, supporting consumer spending but reinforcing expectations that the Federal Reserve may remain cautious about cutting interest rates.
- Trump and Russian President Vladimir Putin discussed the Iran war and prospects for ending the Ukraine conflict on Monday in their first telephone call this year, the Kremlin said. This came hours after Putin warned the fighting could trigger a global energy crisis. The call came as the US considers easing oil sanctions on Russia to boost global supply after disruptions to Middle East shipments sent crude prices surging. The leaders also discussed the impact of events in Venezuela on the global oil market.
- Economists said on Wednesday that a US Supreme Court ruling curbing Trump’s ability to impose tariffs could support China’s export momentum, even as companies remain cautious about the durability of lower duties. Some exporters are accelerating shipments to take advantage of the temporary window, while others warn levies could return. The shift may help sustain China’s economy as policymakers target growth of 4.5% to 5% this year.
- China’s exports surged 21.8% year-on-year in January–February, data showed on Tuesday, far exceeding the 7.1% growth forecast in a Reuters poll and accelerating from a 6.6% increase in December, driven by strong electronics demand. Semiconductor exports jumped 66.5%, the fastest growth in more than a decade, amid a global memory chip shortage. Rapidly rising global defence spending could also lift external demand for Chinese industrial goods.
- China is betting AI will create jobs and support economic growth as it confronts an ageing workforce and slowing expansion, policymakers and company executives said during parliament’s annual session on Tuesday. Officials said the technology could help absorb about 12.7 million university graduates entering the labour market this year. Beijing’s push to expand AI across industries over the next five years aims to boost productivity and offset demographic pressures on the world’s second-largest economy.
- Apple increased iPhone production in India by about 53% in 2025 to roughly 55 million units, meaning about a quarter of the company’s devices are now assembled there, sources said on Tuesday. The shift reflects Apple’s efforts to diversify manufacturing away from China and reduce exposure to US tariffs. Apple currently assembles all versions of the latest iPhone 17 lineup in India, including the high-end Pro and Pro Max models. Apple makes about 220-230 million iPhones globally each year, with India’s share of the total increasing rapidly.
- Microsoft said on Monday it is adding Anthropic’s AI technology to its Copilot service, unveiling a new tool called Copilot Cowork based on Anthropic’s Claude Cowork offering. The software can build apps, organise data and create spreadsheets with limited human oversight. Microsoft will also make Anthropic’s Claude Sonnet models available to Microsoft 365 Copilot users.
- Elon Musk’s rocket and satellite maker SpaceX is leaning toward listing its shares on Nasdaq in what could become the largest initial public offering ever, sources said on Monday. The company is seeking a valuation of about $1.75 trillion and wants early inclusion in the Nasdaq-100 index. The New York Stock Exchange is also competing for the listing, though no final decision has been made.
- As at Thursday’s close the S&P 500 was 1% down for the week.
Local News
- Government officials and business leaders are aligned on the impact of the war, warning yesterday that the Middle East conflict could push up oil prices, inflation and interest rates, putting pressure on South Africa’s economy. Business leaders cautioned that prolonged conflict could weaken asset values and growth, while International Relations Minister Ronald Lamola said the war is already sending shockwaves through global markets and could drive up fuel and food prices across Southern Africa. Parliament is set to debate the war’s implications next week.
- The Department of Mineral and Petroleum Resources said on Tuesday there is no immediate risk of fuel shortages despite escalating conflict in the Middle East and disruption to the Strait of Hormuz. The department said it remains in contact with oil companies to ensure supply stability. Analysts warned that refinery closures over the past few years have increased South Africa’s reliance on imported fuel. The Central Energy Fund estimates petrol could rise by more than R3 a litre in April.
- Economists said on Tuesday that South Africa’s latest growth data highlights the economy’s vulnerability to global shocks because of a weak industrial base. Data from Statistics South Africa showed the economy grew 0.4% in the fourth quarter of 2025, up from 0.3% in the previous quarter, with full-year growth at 1.1%, below the National Treasury’s 1.4% forecast. Growth was mainly driven by finance, trade, and personal services, all of which recorded positive growth. Absa warned rising oil prices linked to the Middle East conflict could weigh on growth this year.
- Manufacturing production contracted in January, according to Statistics South Africa data released on Thursday, signalling continued weakness in a sector that has weighed on economic growth. The decline was driven by sharp falls in wood products, paper and printing (down 11% year on year), and basic iron, steel and machinery (down 5.7%). Although production rose 1.5% month on month on a seasonally adjusted basis, output was 1.7% lower in the three months to January compared with the previous three months. The figures add to concerns about South Africa’s fragile growth outlook
- Mining production rose 4.6% year-on-year in January, the strongest increase since October 2025, driven mainly by platinum group metals output, Statistics South Africa data showed yesterday. Platinum group metals production increased 10.8% and was the biggest contributor to the rise, while chromium and manganese output also supported the gain.
- South Africa’s five largest banks by market value have shed more than R200 billion since the outbreak of the Middle East conflict as rising oil prices and a weaker rand unsettled markets. Capitec and FirstRand each lost more than R50 billion in value, while Standard Bank, Absa and Nedbank also declined. The turmoil has erased the January and February gains in the JSE All Share Index.
- Standard Bank yesterday reported an 11% increase in headline earnings for the year to December, supported by strong growth across its diversified banking franchises. Headline earnings per share increased 12% to 3,025.7c, while the group delivered a return on equity of 19.3%, at the top end of its target range. Growth was driven by higher client activity, solid balance sheet expansion and increased fee and trading income across retail, corporate and investment banking operations.
- Banking group Absa said on Tuesday that headline earnings for the year to December rose 12%, supported by strong growth in its Africa Regions unit. Revenue increased 5% as both net interest and non-interest income rose. The group reiterated its medium-term targets.
- Naspers and Prosus led gains on the JSE on Tuesday after Tencent launched a new AI workplace agent, WorkBuddy, that is compatible with the OpenClaw platform, an open-source system that allows autonomous AI agents to perform tasks through messaging apps such as WhatsApp. Tencent shares rose in Hong Kong, lifting the South African technology investors whose valuations are closely tied to their stake in the Chinese group. Naspers gained about 7% while Prosus rose nearly 9%.
- As at the time of writing, the rand was 1.6%weaker against the dollar, and the ALSI was 1% down for the week.
Sources: Dynasty, Bloomberg, Reuters, Business Day, Daily Maverick, The Economist, etc.
