Oil prices have surged dramatically, with Brent crude priced at $106 per barrel as of Monday morning, up more than 40 percent from $72 per barrel on February 27. Following the closure of the Strait of Hormuz on March 4, 2026, oil and LNG exports were stranded, causing Brent crude to surge past $120 per barrel and forcing QatarEnergy to declare force majeure on all exports. The International Energy Agency characterized this as the largest supply disruption in the history of the global oil market. Liquified natural gas prices have risen by almost 60 percent since the start of the war, according to Muyu Xu, a senior crude oil analyst at Kpler.
This disruption marks a stark departure from recent oil market behavior. Since October 7, 2023, oil prices had remained in the range of $70 to $90 per barrel of Brent crude, with highs in October 2023 and after the April 2024 Iranian attack on Israel. High oil prices after slight spikes were never sustained and quickly flattened during tense points of kinetic activity in the Israel-Gaza conflict. There is consensus among oil market participants that the correlation of oil price to Middle East regional risk is broken. Sanguinity about the availability of supply, including from non-OPEC and North American production, continued to maintain oil price stability.
The current crisis stems from a significant escalation in hostilities. The United States-Israeli war on Iran and Tehran's retaliatory strikes have upended global financial and energy markets, raising concerns of a global economic crisis or recession. Since US-Israeli strikes on Iran began on February 28, Tehran has launched ballistic missiles targeting Israel, US military bases, oil depots, and other infrastructure across the Gulf region. Iranian attacks on vessels passing through the Strait of Hormuz have dramatically reduced traffic in the channel, through which about 20 percent of global oil and gas supplies transit.
Energy infrastructure has been directly impacted. QatarEnergy suspended its LNG production after an Iranian drone attack on March 2, straining the global LNG market. Arab states of the Persian Gulf and Iran rely on the Strait of Hormuz for their energy exports and grocery imports, with only Saudi Arabia and UAE having alternative, albeit limited, routes. Oil production of Kuwait, Iraq, Saudi Arabia, and the United Arab Emirates collectively dropped by a reported 6.7 million barrels per day by March 10, and by at least 10 million barrels per day as of March 12.
Asian markets are particularly vulnerable to these disruptions. Countries, particularly in Asia, are scrambling to secure alternative supplies at higher prices and adopt emergency measures due to inability to receive crude oil and refined products from the Middle East Gulf. About 84 percent of crude oil and 83 percent of LNG that passed through the Strait of Hormuz in 2024 was bound for Asia, according to US Energy Information Administration data. China, India, Japan, and South Korea accounted for nearly 70 percent of oil shipments through the Strait of Hormuz, with about 15 percent bound for the rest of Asia.
The regional economic impact has been severe. The war has caused a systemic collapse of the Gulf Cooperation Council economic model. The maritime blockade triggered a concurrent grocery supply emergency across Gulf Cooperation Council states, which rely on the Strait for over 80% of their caloric intake. By mid-March, 70% of the region's food imports were disrupted, forcing retailers like Lulu Retail to airlift staples, resulting in a 40–120% spike in consumer prices. The crisis has shifted from a fiscal contraction toward fears about a humanitarian crisis following Iranian strikes on desalination plants—the source of 99% of drinking water in Kuwait and Qatar.
Previous conflicts did not produce such dramatic price spikes because the market demonstrated a precise understanding of energy infrastructure risk rather than broader political risk. The market has likely absorbed an understanding of shifting demand, including China's changing economy and demographic decline. Devastation in Gaza and Lebanon and direct strikes on Israel and Iran had not severely affected the physical assets of oil and its transport and delivery in earlier phases. Despite Houthi threats, oil shipments had found workarounds in longer transport routes, and energy products and tradeable goods were only marginally affected.
Financial markets have experienced significant volatility. The impact of the conflict echoes the 1970s energy crisis through acute supply shortages, currency volatility, inflation, and heightened risks of stagflation and recession. Interest rate reductions were expected to be postponed or increased in light of higher inflation caused by supply shortages and speculation. Stock markets experienced declines globally and there was a global bonds market sell-off. Even with oil above $100 since the war began, the S&P 500 is down about 4% and nearly 6% below its all-time high.
Despite recent volatility, Wall Street strategists point to signs that markets may be trying to look past the Iran conflict. Last Tuesday, the S&P 500 leaped 2.9% for its largest gain since May after President Trump signaled he was considering winding down military presence in Iran over the next two to three weeks. Yardeni Research will likely lower its recession probability from 35% to 20% once there is greater clarity on whether the Middle East conflict has truly ended. Yardeni Research is maintaining its 7,700 S&P 500 year-end target and commitment to its 'Roaring 2020s' base case.
Corporate earnings have shown surprising strength despite geopolitical risks. While some economists warn that prolonged energy costs heighten risks of stagflation, a lack of data has prevented Wall Street from slashing profit forecasts. Heading into earnings season, companies and analysts have been more optimistic than usual in their outlook for the first quarter, according to FactSet data. The S&P 500 is expected to report year-over-year earnings growth of 13.2%, compared to the estimated 12.8% at the end of last year, marking the sixth consecutive quarter of double-digit annualized earnings growth.
The banking sector has benefited from market volatility. Wall Street's largest banks are on track to post record or near-record equities trading revenue, as market swings spur heightened client activity. Firms including JPMorgan, Goldman Sachs, and Morgan Stanley are expected to benefit from increased repositioning by investors navigating macro risks. The surge in trading activity is helping offset uneven performance in other parts of investment banking, reinforcing how volatility can act as a tailwind for major financial institutions.
The technology sector is providing a strong counterbalance to geopolitical worries. Taiwan Semiconductor Manufacturing Co. reported record quarterly revenue driven by sustained demand for AI chips. Taiwan Semiconductor Manufacturing Co.'s sales jumped sharply in the first quarter, underscoring how AI-related spending remains resilient despite broader uncertainty. The strength in semiconductors highlights that structural growth tied to AI and advanced computing continues to attract capital, even as macro risks intensify.
Price scenarios depend heavily on conflict duration. According to a Capital Economics report, if the conflict is short-lived and Iranian attacks cease, oil and LNG prices would fall back sharply with Brent crude reaching $65 per barrel by year-end. In case of a longer war, oil prices would rise further during the conflict to around $130 per barrel in Q2, and shipments through the Strait of Hormuz would be affected.
Regional economic damage has been uneven. The Middle East's economy is fragmented, trade and investment are poorly integrated regionally, and areas with the least exports and energy products have suffered the most. The Gazan economy was already isolated, so no contagion has occurred from its weak trade or investment linkages. Lebanon has experienced the most damage in terms of growth and economic activity, with the UNDP estimating a 9.2 percent loss of GDP this year. Egypt has suffered revenue losses of $1 billion per year due to decreased traffic in the Suez Canal.
Iranian oil exports have continued despite sanctions. Without direct attacks on Iran's oil refining or export infrastructure, heavy sanctions have not prevented Iran from meeting its customers' needs. Iranian oil exports in 2024 stand at an estimated 1.7 million barrels per day. Saudi and Emirati oil production and export facilities have yet to face threats of retribution for collaboration with US or Israeli military attacks on Iran.
Long-term implications suggest profound regional transformation. The regional aviation sector, including Emirates and Qatar Airways, faced a near-total cessation of operations due to multi-national airspace closures, causing widespread disruption to global air travel. Analysts have noted a profound shift in the region's long-term economic narrative, with Deutsche Welle reporting that Gulf states are unlikely to sustain high levels of investment spending during or after the war. The Qatar-funded Middle East Council on Global Affairs suggested the war has irreversibly shaken the region's image, exposing fragility beneath the facade of rapid economic transformation. Sinem Cengiz conveyed that the immeasurable social and psychological impact in economic, political, and security spheres were unlikely to fade.
Several key uncertainties remain. A ceasefire agreement between the US and Iran is showing signs of strain ahead of renewed negotiations. Tanker traffic through the Strait of Hormuz remains weak. The exact timeline and nature of the conflicts described remains unclear, as sources refer to different events including the Israel-Gaza war, US-Israeli war on Iran, and a 2026 Iran war.