Global markets are entering a sixth week of stress testing as the war with Iran continues with no immediate resolution in sight. The main risk factor remains the closure, or near‑closure, of the Strait of Hormuz, a strategic chokepoint through which roughly one‑fifth of global oil and liquefied natural gas flowed before the conflict began on Feb. 28.
Until energy exports through the Strait return to something approximating normal levels, a global shockwave will continue to reverberate across the world economy. The US is partly insulated because it is a net exporter of total petroleum, but oil is a globally priced commodity, so rising prices abroad still lift energy costs at home.
Higher fuel prices will spill over into the broader economy, pushing up and slowing growth to some degree. Uncertainty about the extent of these risks will keep markets on edge for the foreseeable future.
Investors have repriced assets accordingly since the war began, and this shift in risk appetite remains intact. With the exception of commodities, all major asset classes have declined in the regime shift triggered by the conflict with Iran.
Using a set of ETFs through Thursday’s close (Apr. 2), a broad commodities portfolio () is the lone upside outlier, rising 2.9% since the war began. At the opposite extreme, the biggest loser is global property stocks ex‑U.S. (), which have fallen nearly 12%.
In a sign of the times, the Global Market Index—a passive benchmark holding all major asset classes in market‑value weights except cash—has dropped 4.8% during the war. That’s a reminder that most globally diversified strategies have probably taken a hit during the war.
The crucial question for markets is when normal (or near‑normal) energy exports will resume. The odds of a quick resolution remain low, based on the latest news reports. Notably, President Trump on Sunday threatened to destroy Iran’s critical infrastructure unless it allows energy shipments to move through the Strait. Iran responded that new attacks on its civilian infrastructure would intensify Tehran’s strikes on energy facilities in the Gulf region.
As the war drags on, it is becoming clear that Iranian control over the Strait will not easily be dislodged without a deal with the government in Tehran. On that basis, a quick resolution may remain elusive.
Professor Robert Paper, a professor of political science at the University of Chicago who studies military strategy and international security, summarizes the challenge, warning that “The War Is Turning Iran Into a Major World Power.”
Modern economies do not simply require oil. They also require oil delivered on time, at scale and with predictable risk. When that reliability breaks down, insurance markets tighten, freight rates spike and governments begin to look at energy access as a complex strategic challenge rather than a simple market transaction.
The problem for the United States is one of asymmetry. Protecting each and every oil shipment that passes through the Strait of Hormuz against potential attacks — mines, drones, missile strikes — is a full-time operation. It requires continuous military presence. Iran needs only to hit an oil tanker once in a while to cast doubt on the reliability of the world’s oil shipments.
President Emmanuel Macron of France said as much on Thursday when he declared that it was “unrealistic” to open the Strait of Hormuz by force and that “this can only be done in concert with Iran.” He was all but admitting that the flow of oil cannot be guaranteed without Iran’s agreement.
Short of a complete regime change, Iran appears set to maintain significant influence over the flow of Middle East energy exports. Before Feb. 28, this risk factor was essentially off the radar for global markets. Now that it has become central to setting risk premiums and recalibrating risk appetite, markets are likely to remain volatile.
How long this transition lasts is anyone’s guess, but the aftershock of the war with Iran may last longer and run deeper than optimistic estimates suggest.