Oil shock and Middle East tensions rattle global markets

Global markets today are being driven primarily by a sharp escalation in Middle East geopolitical risk after coordinated U.S.–Israel military strikes on Iran over the weekend, which has triggered a spike in oil prices and a broad risk-off tone across equities. The attacks have raised fears of potential disruption in the Strait of Hormuz, a critical chokepoint through which roughly 13 million barrels of oil pass each day. This has pushed Brent and WTI crude sharply higher in their biggest one-day jump since Russia’s 2022 invasion of Ukraine. Investors are now focused on the risk that any further escalation or disruption to shipping could send oil prices toward $100 per barrel, which would raise energy costs globally, pressure corporate profit margins, and potentially reignite inflation concerns. Equity markets opened lower as investors moved away from risk assets and into perceived havens, with small caps underperforming and volatility spiking. Energy shares are one of the few beneficiaries, as higher oil prices support earnings in the sector, while defense-related names are also seeing increased interest amid rising geopolitical tensions. Broader indices, however, remain under pressure as markets reassess global growth and inflation expectations in light of higher energy costs. On the macro side, recent U.S. data showing a sharp jump in ISM Manufacturing Prices adds to worries that input costs may be reaccelerating, especially when combined with the oil shock. This complicates the outlook for central banks, which may need to balance lingering inflation risks against any potential growth slowdown caused by geopolitical uncertainty. Investors are also watching for further official communication, including scheduled remarks from President Trump on the Iran conflict later today, which could influence market sentiment depending on whether the message points toward de-escalation or a prolonged confrontation.