Middle East Tensions Escalate: How US-Iran Conflict Could Reshape Global Markets

London (Reuters). The Middle East has been thrust into a new conflict after the United States and Israel targeted Iran's leadership with attacks on Saturday. US President Donald Trump stated that this move would end security threats and give Iranians an opportunity to overthrow their rulers.

As fears of escalating conflict rise, this attack has alarmed neighboring oil-producing Gulf Arab nations, and Tehran has responded by launching missiles toward Israel. Details on how this conflict could affect world markets are presented below:

• Surge in Crude Oil Prices

Crude oil is the main barometer for measuring tension in the Middle East. Iran is a major oil-producing nation and is located near the Strait of Hormuz, across from the oil-rich Arabian Peninsula. Approximately 20 percent of the world's oil supply passes through this route. The conflict could limit oil supply in the global market and increase prices.

On Friday, Brent crude oil was trading at around $73 per barrel, which is already up 20 percent this year.

Four trade sources stated on Saturday that some major oil companies and top trading houses have suspended crude oil and fuel shipments through Hormuz due to the attack.

William Jackson, Chief Emerging Markets Economist at Capital Economics, stated that even if the conflict is contained, Brent crude prices could rise to $80. This was the high point reached during the 12-day war in Iran last June.

He noted in a memo that if the conflict drags on and affects supply, oil prices could reach nearly $100, adding 0.6 to 0.7 percentage points to global inflation.

• Sharp Volatility Across Markets

This conflict is likely to cause further instability in world markets, which have already experienced sharp volatility this year due to Trump's tariff policies and the rapid sell-off of technology company shares.

The VIX Volatility Index has increased by one-third this year, and US bond volatility has risen by 15 percent.

According to analysts, currency markets are unlikely to be immune to its impact.

A CBA note indicated that during the June conflict, the dollar index fell by about 1 percent. However, that decline was momentary and returned to its previous level within three to four days.

“In the current situation, the magnitude of the decline will depend on how large and how long the conflict lasts,” CBA analysts said in a note a week ago.

“If the conflict lasts a long time and oil supply is disrupted, we expect the US dollar to strengthen against most currencies, except the Japanese Yen and the Swiss Franc. Since the US itself is an energy exporter, it benefits from rising oil and gas prices due to supply disruptions.”

Since Iran immediately retaliated against Israel on Saturday, the Israeli currency will certainly experience volatility.

It fell by 5 percent at the start of the June war. Furthermore, it was affected when Israel attacked Iran's consulate in Damascus in April 2024 and when Iran launched missiles toward Israel in October of the same year.

All those events were temporary, and the currency returned to normal shortly thereafter. However, according to JPMorgan, the situation could be different this time if the conflict drags on and the market risk premium continues to rise.

Wall Street Bank stated, “This situation could arise, especially if the confrontation with Iran leads to further aggressive action against Iran-backed groups.”

• Attraction towards Safe-Haven Investments

The value of the Swiss Franc, considered a safe-haven investment during times of crisis, is expected to rise further, which will increase the headache for the Swiss National Bank. It has already increased by 3 percent this year against the US dollar.

Investors may also be drawn to gold, which has achieved a 22 percent increase in 2026, setting a record. Investment in silver, which is also continuously rising, may also increase.

This conflict may also increase demand for US Treasuries, whose yields had been falling for the past few weeks. The exception to this is Bitcoin, which is no longer considered a safe investment. Its price fell by 2 percent on Saturday, and it has lost more than a quarter of its value in the last two months.

Trading on Sunday in Middle Eastern stock markets, including Saudi Arabia and Qatar, will give an initial indication of investor sentiment. Although these markets are highly correlated with oil prices, the escalating conflict could ripple through the entire economy.

Ryan Lemand, CEO and Co-founder of Neovision Wealth Management, said, “If these conflicts continue throughout the day, I expect the market to decline.” He stated that Gulf stock markets could fall by 3 to 5 percent depending on the level of conflict.

The benchmark stock index of Saudi Arabia had fallen by 1.3 percent in the five days leading up to Thursday, marking the second consecutive week of decline. Dubai's main market, which reopens on Monday, has also fallen over the past two weeks.

• Airlines and Defense-Related Shares

Airlines worldwide canceled flights through the Middle East on Saturday. If the conflict spreads and more airspace has to be closed, their share prices could come under pressure.

Shares of European arms manufacturers, which have increased by 10 percent this year, may see increased demand.