Oil price spike and inflation worries weigh on global markets after U.S.-Iran escalation

Global markets today are being driven primarily by a sharp escalation in Middle East geopolitical tensions and fresh signs of persistent inflation in U.S. manufacturing data. Over the weekend, the U.S. and Israel launched a coordinated military attack on Iran, sharply raising geopolitical risk and fears of potential disruptions to oil supplies, particularly around the critical Strait of Hormuz. In response, oil prices are surging, with Brent crude jumping about 8% and WTI crude rising nearly 7%, marking the largest single-day spike in oil prices since Russia’s 2022 invasion of Ukraine. This sudden move is pushing investors toward defensive areas of the market, especially energy, while increasing volatility across global equities as traders reassess the outlook for inflation, growth, and corporate profits. At the same time, new U.S. economic data show that inflation pressures in the manufacturing sector remain elevated. The ISM Manufacturing Prices index for February jumped to 70.5, far above expectations of 59.5. This suggests that input costs for manufacturers are rising faster than anticipated, complicating the path for central banks that had been moving toward or considering interest-rate cuts. Higher oil prices combined with stronger manufacturing price pressures raise the risk that inflation could stay higher for longer, which may keep monetary policy tighter than markets had hoped and weigh on risk assets globally. These twin forces—geopolitical shock in the Middle East and hotter-than-expected manufacturing inflation—are driving broad-based equity weakness, with smaller, more economically sensitive stocks under particular pressure, while energy and other defensive segments outperform. Investors are likely to watch closely for any further military developments and for official comments, including scheduled remarks from U.S. leadership on the Iran situation, as these could quickly shift risk sentiment and market direction through the rest of the trading day.