The U.S. and Israel launched joint strikes on Iran on February 28, prompting Iran to respond with counterattacks across multiple Middle Eastern cities. Iran is a meaningful oil producer, the fourth largest within OPEC, accounting for roughly 4% of global oil supplies, with about 80% of its exports going to China. The country also occupies a strategically important position: it controls access to the Strait of Hormuz, a key chokepoint through which approximately 20% of the world’s oil supply flows.
Recent attacks on energy infrastructure have disrupted production of both oil and natural gas, while oil and liquified natural gas (LNG) tankers have been delayed or rerouted. In response, the U.S. administration announced measures to provide risk insurance to ships traveling through the region, including oil tankers.
Markets respond to short-term uncertainty
Heightened geopolitical risk and the potential for supply disruptions drove oil prices more than 10% higher since the start of military action, triggering a risk‑off response in equities. Bonds and gold held up better, though they also posted modest declines as investors weighed the possibility that higher oil prices may lift near‑term inflation and potentially delay the Fed’s anticipated rate cuts.
The U.S. dollar strengthened, reflecting its haven status, which contributed to the underperformance of overseas equities. Europe and Asia, in particular, are more dependent on imported oil that travels through Middle Eastern shipping lanes.