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, according to research from eight sources. Since the 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 in the Strait of Hormuz have dramatically reduced traffic in the channel, through which about 20% of global oil and gas supplies transit.
Immediate energy market disruptions have seen oil prices soar, with Brent crude at $106 per barrel as of Monday morning, up more than 40% from $72 per barrel on February 27. Liquified natural gas (LNG) prices have risen by almost 60% since the start of the war, according to Muyu Xu. QatarEnergy suspended its LNG production after an Iranian drone attack on March 2, straining the global LNG market; Qatar supplies 20% of the world's LNG.
About 84% of crude oil and 83% of LNG that passed through the Strait of Hormuz in 2024 was bound for Asia, with China, India, Japan, and South Korea accounting for nearly 70% of oil shipments, according to the US Energy Information Administration. The MSCI Asia-Pacific index dropped 1%, totaling a 2.2% loss for the week, with Japan's Nikkei falling 1.4% and South Korean equities sliding nearly 2%. The MSCI emerging market stock index sank 1.4%, extending a decline of nearly 8% since the war's onset in late February.
Contradictory oil price projections hinge on the conflict's duration. According to a Capital Economics report, if the conflict is short-lived, oil and LNG prices would fall sharply, with Brent crude reaching $65 per barrel by year-end; in a longer war, oil prices could rise to around $130 per barrel in Q2. According to medium-confidence research, if the conflict does not intensify, Brent crude is expected to fall to a four-year low of $73 in 2025, down from $80 a barrel in 2024.
Military developments have intensified regional tensions. On October 26, Israel launched a targeted attack on an Iranian missile production site, killing one civilian and 4 IRGC soldiers. The US stationed B-52 Stratofortress bombers and F-15 fighter jets in the region in response to the conflict. On October 1, Iran launched approximately 180 ballistic missiles at Israel, with some striking central and southern parts, causing damage to Israeli air bases.
European markets retreated, with the STOXX 50 and STOXX 600 dropping approximately 1%, erasing earlier momentum for the week. Defense and energy stocks like Rheinmetall, Repsol, and BP recorded gains due to geopolitical concerns.
The US dollar has shown conflicting performance trends. The U.S. dollar fell by 10% in the first half of 2025, marking its largest six-month decline since 2009 and one of its worst yearly starts since the early 1970s. However, the US dollar surged to a more than three-month high on Friday, driven by its safe-haven status and the US position as a net energy exporter.
Long-term commodity price outlooks suggest oversupply concerns. Global commodity prices are set to tumble to a five-year low in 2025 amid an oil glut, with overall prices remaining 30% higher than pre-COVID-19 levels. The global oil supply is expected to exceed demand by an average of 1.2 million barrels per day in 2025, a glut exceeded only twice before. OPEC+ maintains significant spare capacity of 7 million barrels per day, almost double the amount in 2019.
Shifting currency dynamics are emerging as geopolitical concerns fade. Rumors of talks between the US and Iran are supporting the euro, and the drop in oil prices is linked to weakening demand. The US dollar is losing its edge as geopolitical concerns fade, with markets refocusing on vulnerabilities like pressure on the Fed to cut rates. The US Dollar Index is cratering as it loses the war premium built up during the Iran conflict, on track for its third-biggest decline of the year.
Emerging markets are rallying, with South Korea leading country ETFs with a gain of more than 10%, and others like Chile, Taiwan, and Japan up more than 5%. Gold and copper futures are gaining 3%, while silver and platinum are surging 7%.
In political context, Donald Trump won 300 electoral votes, becoming the only second leader to serve non-consecutive tenures, according to sources.
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