Global financial markets are preparing for heightened volatility after the United States and Israel carried out strikes on Iran, triggering fears of wider conflict in the Middle East and potential disruptions to global energy supplies, Reuters reported. Tehran retaliated by launching missiles towards Israel, intensifying concerns among investors and oil producers across the region.
President Donald Trump said the strikes were aimed at eliminating a security threat and offering Iranians an opportunity to challenge their leadership, while nearby Gulf nations moved into alert mode amid fears of escalation.
Oil markets take centre stage
Oil prices remain the most immediate indicator of geopolitical stress. Iran’s location along the Strait of Hormuz - through which roughly 20% of global oil supply flows - makes any regional conflict a direct risk to energy markets.
Brent crude was trading near $73 per barrel on Friday, its highest level since July and already up sharply this year. Following the attacks, several oil majors and trading firms suspended shipments through the Strait of Hormuz, four trading sources told Reuters.
William Jackson, chief emerging markets economist at Capital Economics, said Brent could climb to about $80 even if tensions remain contained. A prolonged disruption, however, could push prices towards $100 per barrel, potentially adding 0.6–0.7 percentage points to global inflation, he said.
Volatility risks rise across assets
The escalation threatens to amplify market swings already driven by trade tensions and a global technology-sector selloff earlier this year.
The VIX volatility index has climbed by roughly one-third in 2026, while implied volatility in US bond markets has risen about 15%.
Currency markets are also expected to react. Analysts at Commonwealth Bank of Australia noted that during the June conflict involving Iran, the dollar index briefly weakened before stabilising within days.
“In current circumstances, the size of the fall will depend on how large and how long-lasting the conflict is expected to be,” CBA analysts said.
They added that a sustained disruption to oil supply could instead strengthen the US dollar against most currencies, except traditional safe havens such as the Japanese yen and Swiss franc.
Israel’s shekel is another closely watched currency. It fell sharply at the start of previous regional conflicts before rebounding, though JPMorgan warned that prolonged hostilities could produce a more lasting impact this time.
“This would especially be the case if confrontation with Iran also triggers more intensive operations against Iran’s proxies,” the bank said.
Safe-haven demand builds
Investors are increasingly shifting toward defensive assets. The Swiss franc, widely viewed as a safe haven, has already gained about 3% against the US dollar this year and may strengthen further.
Gold, which has surged 22% in 2026, could attract additional inflows alongside silver. US Treasury bonds are also expected to benefit as investors seek stability.
Bitcoin, however, has not behaved like a traditional hedge. The cryptocurrency slipped 2% on Saturday and has declined more than 25% over the past two months.
Gulf markets under scrutiny
Attention has turned to Middle East stock exchanges for early signals of investor sentiment. Markets in Saudi Arabia and Qatar began trading Sunday, while Dubai reopens Monday.
“I suspect markets will be down if these hostilities continue through the day,” said Ryan Lemand, chief executive officer and co-founder of Neovision Wealth Management, estimating Gulf equities could fall between 3% and 5% depending on how the conflict evolves.
Saudi Arabia’s benchmark index had already declined 1.3% over the previous five trading days, extending recent losses.
Airlines under pressure, defence stocks gain
Airlines have cancelled flights across parts of the Middle East, raising the risk of further pressure on aviation stocks if airspace disruptions expand.
Defence companies, by contrast, may benefit. European weapons manufacturers, already up about 10% this year, could see stronger demand amid rising geopolitical tensions.
With oil flows, currencies and regional equities reacting first, investors are watching closely to gauge whether the latest escalation remains contained or develops into a broader market-moving crisis.
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