So, here we go again. Over the weekend, the United States and Israel decided to make some noise, launching strikes against targets in Iran. For energy traders, the immediate reaction wasn't about geopolitics—it was about geography. Iran sits right across from the Arabian Peninsula at the Strait of Hormuz, which is basically the world's most important oil faucet. Roughly one-fifth of global crude supply squeezes through that narrow passage. The fear, obviously, is that an escalating conflict could lead someone to start turning that faucet off, or at least make the delivery guys too nervous to drive through the neighborhood.
President Donald Trump framed the operation as "major combat operations" aimed at crushing Iran's military capacity and ending what he called an imminent threat tied to Tehran's nuclear ambitions. According to reports, the strikes targeted Iran's leadership and were followed by Iranian missiles launched toward Israel, which naturally put every oil producer in the nearby Gulf on high alert. The practical result? Some major oil companies and leading trading houses reportedly hit pause on moving crude and fuel through the Hormuz corridor. When the guys who move the physical barrels get skittish, the paper market tends to notice.
Trump tied the whole thing to a breakdown in nuclear talks, saying he hadn't reached a "final decision" as recently as Friday. He also pointed back to last June's Operation Midnight Hammer, saying it "obliterated" three nuclear sites and that Washington had warned Iran against rebuilding its program. The political messaging here is pretty direct: this is about preventing a nuclear Iran and dismantling its missile capabilities and proxy networks. But for the market, the message is simpler: risk premium, incoming.
Escalating Conflict Could Spike Oil Prices
Trump said the U.S. objective included ensuring Iran "can never have a nuclear weapon," casting the strikes as a preemptive move. That's a big deal politically, but for oil traders, the bigger deal is the map. The Strait of Hormuz is the pressure point. Brent crude had already settled near $73 a barrel on Friday, up about 20% for the year. Now, analysts are doing the math on what happens next.
According to reports, Capital Economics' William Jackson wrote that even if hostilities remain somewhat contained, Brent could march toward $80—a level seen during last June's 12-day conflict. The scarier scenario? A longer disruption that actually bites into physical supply. That, Jackson warned, could lift prices toward $100 and add about 0.6 to 0.7 percentage points to global inflation. So, we're not just talking about a blip at the pump; we're talking about something that could genuinely complicate central banks' lives.
How Will Markets Respond To Geopolitical Tensions?
Beyond the crude tankers, investors are bracing for a bumpy ride everywhere. Markets in 2026 have already been jumpy, thanks to tariff drama and a steep tech selloff. The VIX volatility gauge has climbed about a third this year, and the MOVE index tied to U.S. rate volatility is up 15%. This new geopolitical shock is like throwing a lit match into a room that already smells like gasoline.
Currency traders are watching closely. The playbook from last June's conflict showed the U.S. dollar dipped about 1% but recovered within days. Analysts from Commonwealth Bank of Australia noted that pattern could hold—unless the conflict drags on and actually squeezes oil supply. In that case, the dollar could get support against most currencies, while traditional safe havens like the Japanese yen and Swiss franc might hold up better.
Then there's Israel's shekel. It's a market that has reacted sharply to prior flare-ups before rebounding quickly. But, as JPMorgan cautioned, that pattern could break if risk premiums decide to stick around, especially if the fighting expands to include heavier action against Iran-aligned groups. It's a reminder that local currencies in the middle of a conflict don't always follow the textbook.
Meanwhile, the rhetoric is heating up. Trump warned civilians that "bombs will be dropping everywhere" as operations continued, while urging Iranians to "take over your government" after the fighting. Iran's Islamic Revolutionary Guard Corps said it launched a first large-scale wave of missile and drone retaliation toward Israel. So, the tit-for-tat cycle is already spinning.
