The conflict, which has produced one of the most severe disruptions to global energy markets in decades, escalated after the US and Israel launched a large-scale strike on Iran on Feb. 28, killing more than 1,300 people, including then Supreme Leader Ayatollah Ali Khamenei. Iran has so far shown no willingness to de-escalate militarily and is likely interested in further destabilizing the Gulf region to drive up the costs of an attack on Iran, according to multiple reports. This ongoing US-Israeli campaign, along with Tehran’s retaliation across the Gulf, has brought commercial tanker traffic through the Strait of Hormuz to a near standstill due to the looming threat of Iranian sea mines and missile attacks.
Immediate impacts on energy markets are severe, particularly for liquefied natural gas. Approximately 20 percent of global LNG trade passed through the Strait of Hormuz before the current conflict, much of it originating in Qatar, the world’s second-largest LNG exporter, and there is no viable alternative export route for this LNG. Further squeezing the LNG market is the March 2 Iranian drone strike on QatarEnergy’s Ras Laffan facilities, which forced an immediate shutdown, according to multiple reports. The Strait of Hormuz, the most critical chokepoint in the global energy trade, normally handles about 20 million barrels of oil a day, roughly 20% of the global supply, but Iran in early March effectively shut down the shipping lane.
Europe faces a precarious gas situation as it enters the critical period when underground gas storage must be replenished ahead of winter. According to the Aggregated Gas Storage Inventory database, European storage levels are currently below 30 percent, a five-year low. A colder-than-average winter, combined with increased gas burn in the power sector, pushed European gas demand up nearly 7 percent since the start of the year, and pipeline year-over-year exports from the European Union to Ukraine surged more than tenfold, further accelerating withdrawals. Under EU regulations, storage levels must reach at least 90 percent capacity by December, meaning Europe will need to inject nearly 60 billion cubic meters of gas during the upcoming refill season just to meet this target. Even before the escalation in the Gulf, Europe’s depleted storage position was forcing it to plan record LNG imports in 2026, though the exact figures for these imports and how the Strait of Hormuz closure will affect these plans remain unclear.
Southeast Asia is highly vulnerable due to its heavy reliance on Middle East oil imports. According to a 2024 report by the International Energy Agency, Southeast Asia relies on the Middle East for about 60% of its oil imports. Data cited by the Financial Times shows specific country dependencies: Singapore is fully reliant on imported crude oil, followed by the Philippines at 95%, Thailand at 79.5%, Vietnam at 56.8%, Brunei at 41.3%, Indonesia at 35.2%, and Malaysia at 15.6%. What specific measures are being taken by other nations in the region beyond those mentioned to address the energy crisis is not fully known.
Nations globally are responding to the energy disruptions with a range of emergency measures. According to multiple reports, these include implementing four-day workweeks, school closures, and export bans. China, the world’s biggest crude importer, has told top oil refiners to suspend exports of diesel and gasoline, according to Bloomberg, which also reported Wednesday that China ramped up crude imports at the start of 2026 and is close to tapping its vast stockpiles, taking as much as 1 million barrels per day over the next four to six weeks. Thailand has announced austerity measures, such as remote work for government employees, using stairs instead of elevators, suspending overseas trips, setting air conditioning at 26-27C, wearing short-sleeved shirts without neckties, turning off electrical appliances, reducing photocopier use, and promoting online meetings. Japan on Monday began its largest-ever release of oil from its strategic reserves, equivalent to 15 days of domestic consumption, and Prime Minister Sanae Takaichi also announced subsidies to effectively cap gasoline prices at around ¥170 ($1.07) per liter if prices rise further, with similar measures for diesel, heavy oil, and kerosene.
Stock markets are reflecting the strain, with regions highly dependent on energy imports under particularly heavy pressure, including Europe, Japan, and Asian emerging markets. The U.S. is less affected, as it is largely self-sufficient in terms of energy policy, according to multiple reports. Large US technology stocks are currently being treated as safe havens and have recorded smaller price losses compared to other sectors.
Investment flows have shown a recent rebound amid hopes for de-escalation. U.S. equity funds drew strong inflows in the week to March 25 as hopes for de-escalation in the Middle East lifted sentiment after U.S. President Donald Trump postponed an attack on Iranian energy infrastructure and proposed a deal to end the war. Investors poured a net US$37.24 billion into U.S. equity funds, the largest weekly inflow since mid-November 2024, snapping a three-week run of net selling, according to LSEG Lipper data. Investors bought U.S. large-cap funds for the first time in seven weeks, adding a net $45.07 billion, while mid-cap and small-cap funds saw net outflows of $2.15 billion and $1.24 billion, respectively.
Market volatility persists, however, as conflict uncertainty continues. The tech-heavy Nasdaq Composite fell more than 2% on Thursday as Iran continued to deny any talks with the U.S., deepening doubts over a swift resolution to the nearly one-month-long conflict. U.S. sectoral funds posted a net $2.9 billion in outflows, the largest weekly withdrawal since December 24, with investors pulling a net $1.45 billion from tech, $974 million from gold and precious metals, and $507 million from healthcare.
Bond and money markets have seen significant shifts. U.S. bond funds attracted a net $7.56 billion, down nearly a third from the $12.05 billion added a week earlier. Short-to-intermediate investment-grade funds drew a net $2.03 billion, the smallest amount in three weeks, while general domestic taxable fixed income funds saw net outflows of $1.11 billion. Short-to-intermediate government and treasury funds received a net $9.07 billion, their biggest weekly purchase since at least May 2024. Money market funds saw $57.96 billion in net withdrawals as investors ended a five-week run of net purchases.
Political developments include increasing pressure on U.S. President Donald Trump, both domestically and internationally, to end the war soon, and he has recently adjusted his rhetoric in this direction. The specific terms or conditions included in Trump's proposed deal to end the war are not publicly known, and how long the Strait of Hormuz will remain effectively shut down, along with the conditions for reopening, remains uncertain.
Apart from the Iran conflict, the investment environment remains generally positive, with analysts largely unimpressed by the hostilities and stable earnings expectations, according to multiple reports. As stock markets have retreated in recent weeks, valuations have fallen.
Global equity fund trends show recent inflows. US equity funds saw a rebound in flows as the first quarter of 2026 came to an end, according to EPFR data. Global equity funds attracted $12.6 billion in inflows in the week ended April 2, 2026, and the inflows into global equity and bond funds were the largest in 10 weeks.
Additional supply chain pressures include pipeline exports from the European Union to Ukraine, which surged more than tenfold year-over-year, further accelerating withdrawals from European storage. The current status of QatarEnergy's Ras Laffan facilities after the March 2 Iranian drone strike, and when operations will resume, has not been confirmed.