Global Markets Rocked by US-Iran Conflict and Strait of Hormuz Crisis
A brutal, weeks-long military confrontation between the US, Israel, and Iran has triggered extreme volatility across global financial markets, sending oil prices soaring and shaking investor confidence.
Geopolitical Chronology
The Outbreak of Conflict
The crisis began with coordinated US and Israeli military operations against Iran. In a swift escalation, Iran effectively closed the Strait of Hormuz—a chokepoint handling roughly 20% of the world's oil—to most commercial shipping. President Donald Trump responded by announcing a US blockade of Iranian ports.
Initial Market Catastrophe
Markets cratered instantly. Australia's S&P/ASX 200 plunged over 4% on the first trading day, wiping out $110 billion in value. US markets fell roughly 7.7% in the opening weeks, with the Nasdaq entering correction territory (down over 10%). The price of Brent crude rocketed from $70 per barrel to over $119, while WTI surged past $110.
Military and Diplomatic Wrangling
Trump issued a series of escalating statements via social media, setting—and then extending—multiple deadlines for Iran to reopen the strait. Meanwhile, Iran selectively permitted passage for tankers from friendly nations, charging tolls in yuan, and threatened to target the energy and water infrastructure of US regional allies in retaliation for any further escalation.
Ceasefire Hopes Dashed
A dramatic two-week ceasefire announcement triggered a 15% drop in oil prices, with Brent falling below $91. Investors cheered the temporary reopening of the Strait of Hormuz.
But the peace was fragile. Iran's Revolutionary Guard attacked ships in the strait, halting shipping once again after Israeli strikes on Hezbollah in Lebanon. Trump later claimed Iran had "agreed to never again close the strait," only for the passage to be shut again after Trump stated the US blockade would remain. Iran then fired on vessels and said it would skip further talks while the blockade persisted.
Negotiations and Peace Talks
Diplomatic efforts continued throughout. The Wall Street Journal reported Trump was willing to end the conflict even if the strait remained largely closed, as his aides assessed a reopening mission would prolong the war beyond a four-to-six-week timeline. Negotiations involving Pakistan's army chief and Iran's parliament speaker were held, with US Vice President JD Vance scheduled to travel to Pakistan to resume talks. A ceasefire was eventually extended, and reports emerged of an "in principle" agreement to maintain it.
Global Financial Markets in Turmoil
Australia's S&P/ASX 200
The ASX 200 endured a painful rollercoaster. After a 9% plunge, it recovered to end the period just 3% below pre-war levels. Analysts noted that investor sentiment was almost entirely driven by the perceived progress of US-Iran peace negotiations and the status of the Strait of Hormuz blockade.
US Markets: S&P 500, Dow Jones, Nasdaq
American stocks fell roughly 7.7% in the early days. The S&P 500 initially dropped 8% but then soared more than 12%, reaching multiple new record highs as hopes of reduced tensions grew. The Dow Jones and Nasdaq also hit historic peaks, with the S&P 500 closing at a record 7,230.12 at the end of the reporting period.
Other International Markets
- Asia: South Korea's Kospi fell 8%, triggering circuit breakers. Japan's Nikkei 225 dropped over 7%.
- Europe: Markets registered steep declines amid an energy crisis.
- Recovery: Many of these markets later staged significant comebacks.
Commodity Markets
Oil Prices: The Epicenter of the Storm
Oil was the primary driver of all volatility. Brent crude rose from $70 to a peak of over $119 per barrel. Prices swung violently in response to every geopolitical event—negotiations, ceasefires, and shipping attacks. At the end of the period, Brent crude settled at $108.17 per barrel.
"This is the largest energy security threat in history," the International Energy Agency said as it released 400 million barrels from strategic inventories to help constrain price spikes.
Gold: A Safe Haven No More
Gold prices fell sharply. By the fifth week of conflict, they had dropped 15% from the start of the US-Israeli operation. In a separate move, gold tumbled 2.6% to $4,370 per ounce—a 20% decline from its peak—as investors favored cash and some nations sold holdings.
Bond Market: Borrowing Costs Surge
Government bond yields rose globally.
- US 10-Year Treasury yield: Rose from ~3.97% to 4.59% before settling at 4.38%.
- 30-Year US Treasury yield: Hit 5.12%, its highest since mid-2007.
- UK 30-Year yield: Hit 5.85%, its highest since 1998.
Higher yields increased borrowing costs for governments, businesses, and households.
Corporate and Sectoral Impact
- Energy Stocks: Soared alongside oil prices. Woodside Energy, Santos, Ampol, Yancoal, and Whitehaven Coal all saw gains.
- Airlines: Crushed by surging jet fuel costs. Qantas revised its fuel cost outlook upward, delayed a share buyback, and extended domestic flight cuts. Virgin Australia and other international carriers also fell.
- Mining and Materials: Major miners BHP, Rio Tinto, and Fortescue experienced declines.
- Financials: Major banks (Commonwealth Bank, Westpac, NAB, ANZ) generally declined.
- Technology: Hit hard. WiseTech, Xero, and Technology One suffered significant losses.
- Other Key Companies:
- CSL: Fell over 18% after announcing $5 billion in writedowns.
- Woolworths: Fell 6% after warning that higher fuel and supply costs would hit profits.
- Webjet: Tumbled 14.3% after Virgin Australia cut commissions.
- Elders: Fell 22.9% after warning that elevated diesel prices remain a major risk.
- News Corp (ARN): Share price dropped 18.9% following a legal dispute involving co-host Jackie 'O' Henderson.
Economic and Policy Statements
- Federal Reserve: Traders reduced expectations for rate cuts in 2025 and began pricing in a chance of a rate hike in 2026. The Fed left rates unchanged but signaled possible cuts ahead. Outgoing Chair Jerome Powell stated the Fed aims for 2% inflation but noted it has limited control over supply shocks like rising energy prices.
- Analyst Commentary: Economists warned of stagflation (high inflation, low growth) and assessed that the disruption to global oil and gas supplies would likely take months to resolve, even with a swift end to hostilities. Some suggested a recession might be necessary to stabilize the economy.