US Stocks Bounce, Oil Prices Remain Elevated as War with Iran Engulfs Region

Key Takeaways

• US equities recovered losses on Monday afternoon while oil prices remained elevated as fighting entered its third day.
• Shipping through the Strait of Hormuz, a chokepoint for global oil supplies, has slowed nearly to a standstill, endangering oil markets.
• A prolonged surge in oil prices would quickly affect inflation expectations, with analysts warning a global inflationary scare could dampen interest-rate cuts.

Oil prices spiked and investors piled into safe-haven assets on Monday as markets assessed the escalating war in the Middle East, following the killing of Iranian supreme leader Ayatollah Ali Khamenei over the weekend. US equities fell in early trading but closed slightly higher onMonday afternoon.

Brent crude oil, the global benchmark, climbed 11.0% after markets reopened Sunday evening and was trading up 6.6% at $77.70 on Monday afternoon. WTI contracts were up 6.9% at $71.73.

“All told, markets are handling the headline risk better than feared,” says Mark Hackett, chief market strategist at Nationwide, who notes that geopolitical shocks tend to be relatively short-lived in equities markets.

Markets Brief: For Iran War Impact on Oil and Other Markets, Longevity and Strait of Hormuz Are Key

The Morningstar US Market Index fell as much as 0.53% after the open, but recovered losses by midafternoon to close 0.09% higher. The S&P 500 was up 0.04%. The Nasdaq 100 closed up 0.36% on Monday afternoon thanks to gains in the technology sector. Gains by oil majors like Exxon Mobil XOM (up 1.05%) and defense firms like Lockheed Martin LMT (up 2.8%) were offset by declines in consumer cyclicals and consumer defensives.

“The glass-half-full view among retail investors and buy-the-dip mindset is a significant factor in the resilience of the market, Hackett says, along with the improving earnings environment. He adds that a prolonged conflict in the Middle East could still mean more volatility down the road.

US Treasury yields ticked slightly higher, with the benchmark 10-year bond rising more than 1 percentage point to 4.055%. Gold advanced more than 2% to around $5,400, while the dollar index climbed above 98 points, hitting a five-week high.

A Chokepoint for the Global Oil Trade

Fighting in the Persian Gulf entered its third day on Monday, with waves of missile and drone attacks intensifying across the region as Iran conducted retaliatory strikes to avenge the killing of the Ayatollah and other top officials in US-Israeli attacks launched Saturday, after talks to curb Tehran’s nuclear program had broken down.

Shipping through the Strait of Hormuz, a chokepoint for global oil supplies, slowed to a near standstill over the weekend, as insurers cautioned that they would cancel policies and raise premiums. As of Sunday, at least three tankers were damaged and one crew member was killed in retaliatory strikes.

Investors are now watching closely to see whether the US and its allies can avoid a prolonged shutdown of energy shipments through the key trade channel.

The Strait of Hormuz is a critical maritime transit route, accounting for around 20% of global oil supplies. That includes around a third of the world’s total seaborne crude exports, destined primarily to Asia, according to market intelligence firm Kpler.

Monday’s oil price spike is consistent with that seen in June 2025, when tensions in the region flared up, with Israel and Iran exchanging air and missile attacks. Global inventories have been rising amid heightened risks in the region, providing some buffer against near-term disruption. However, further volatility could be expected over the coming days and weeks if the conflict continues, particularly if Iran shifts its focus from military targets to energy assets.

Analysts warn that could cause oil prices to approach $100 if the conflict were to endure over an extended period.

“Oil prices would probably level out at $85-95 [per barrel] as strategic reserves were released,” David Roche, president of Quantum Strategy, says.

OPEC+ announced Sunday that it would raise oil production in April by 206,000 barrels a day, as the Saudi-Arabia-led energy coalition sought to stem anticipated disruption to crude markets. However, “Spare barrels serve little purpose if there are no serviceable sea lanes,” wrote RBC analyst Helima Croft in a note to clients.

Meanwhile, LNG supplies could become a “major challenge, with potential for shortages if a blockade or de facto closure of the Strait was sustained for more than a few weeks,” says Dan Marks, research fellow in energy security at the Royal United Services Institute.

How Great Is the Risk to the Global Economy?

While last year’s 12-day conflict between Iran and Israel had a limited impact on commodity prices, extended warfare in the Middle East could have severe implications for the global economy. “While the US and Israel appear to some degree in control of the situation, oil prices may be high but contained. If markets sense that the US and Israel are losing control of the situation and a closure has persisted for more than a few days, it is possible there will be panic,” Marks says.

This one could be long duration and of much greater economic impact.

David Roche, Quantum Strategy

Quantum’s Roche says there are few historic precedents for the potential impact of the conflict: “This one could be long duration and of much greater economic impact.”

Morningstar European markets strategist Michael Field says: “The view from investors was that if it’s concentrated on Iran and Israel, then it is what it is. Markets have priced that in to some degree. But the more it draws in other countries, the more likely it is that markets will continue to fall, or at least not move up while you have so much uncertainty.”

Investors will now be bracing for more volatility over the coming days and weeks, with markets potentially swinging between risk-on relief in the event of regime change in Iran and a resumption in oil trade and risk-off if the conflict persists and supply disruptions intensify.

“In a prolonged period of uncertainty, increases in oil prices could generate a global inflationary scare, which in turn may reduce the likelihood of interest rate cuts by the US Federal Reserve, currently expected for later this year,” says Adam Hetts, Global Head of Multi-Asset and Portfolio Manager at Janus Henderson Investors.

In a note, Capital Economics says that a drawn-out conflict which causes oil prices to climb to $90-$100 per barrel could boost inflation in developed markets by 0.7 percentage points while shaving “a few tenths” from 2026 gross domestic product forecasts.

Lukas Strobl and Sunniva Kolostyak contributed to this story.