U.S. and Israel Strike Iran: Markets Brace for Energy Shock

Escalation raises risk premium across oil, shipping, inflation, and global risk assets as traders focus on the Strait of Hormuz

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The United States and Israel launched coordinated strikes on Iranian targets on Feb. 28, marking a major escalation in Middle East tensions and immediately raising concerns about global energy security and financial-market stability. Initial reports indicate the operation targeted Iranian military and strategic infrastructure, with regional retaliation risks now dominating market focus.

For financial markets, the key issue is not only the military action itself — but whether the conflict expands in ways that threaten the Strait of Hormuz, the world’s most critical oil transit chokepoint.

Why the Strait of Hormuz matters. The Strait of Hormuz connects the Persian Gulf to global markets and handles one of the largest concentrations of energy flows in the world. Key facts:

• Roughly 20–21 million barrels per day move through the strait — about 20% of global petroleum consumption.

• Around one-quarter of global seaborne oil trade passes through it.

• Significant LNG volumes also transit the area.

• There are very few viable alternatives if shipping is disrupted.

Although the U.S. imports relatively less Gulf oil than in past decades, the world oil market is globally priced — meaning any disruption affects U.S. gasoline and diesel prices regardless of origin.

Immediate market reaction: oil moves first. Oil markets had already been pricing in risk before the strikes, with Brent crude rising on fears of disruption tied to U.S./Iran tensions.

Since the attacks:

• Traders are adding a geopolitical risk premium to crude.

• Tanker rates from the Middle East to Asia have surged as shipping risk rises.

• Oil prices touched their highest levels in months, with markets watching for retaliation that could affect flows through Hormuz.

Analysts broadly describe three likely scenarios:

1) Limited conflict (base case)

• Oil spikes initially but stabilizes.

• Supply flows remain mostly intact.

• Historically, many geopolitical oil rallies fade if physical exports continue.

2) Ongoing regional escalation

• Insurance and shipping costs rise.

• Daily volatility becomes headline driven.

• Brent could move toward $80 or higher if supply losses reach roughly 1 million barrels/day.

3) Strait of Hormuz disruption 

• The largest market fear.

• Some models suggest oil could jump well above $100 per barrel in a sustained disruption scenario.

Broader financial market implications. Energy is likely to be the first transmission channel, but the effects quickly spread beyond oil.

Inflation & central Banks

• Higher crude lifts gasoline, diesel, fertilizer, and transport costs.

• A sustained oil shock could revive inflation concerns just as markets had been expecting steady central-bank policy.

• IMF commentary in previous similar episodes warned that energy shocks can spill into global growth through secondary effects.

Equities

• Energy producers typically outperform during oil spikes.

• Airlines, transportation, and consumer discretionary sectors often face pressure due to fuel-cost exposure.

• Overall risk appetite usually weakens during escalating geopolitical conflict.

FX & rates

• Safe-haven flows tend to support the U.S. dollar and Treasuries initially.

• Oil-importing economies (Europe, Japan, parts of Asia) can face added stress if prices remain elevated.

OPEC+ and Supply Response. An important stabilizing factor: producers like Saudi Arabia and the UAE may increase output to offset disruption risks. Reports suggest OPEC+ is considering larger supply adjustments following the strikes.

However, even if spare capacity exists, the key limitation is logistics — much of that oil still must move through the same vulnerable waterway.

Metals markets surge into focus as geopolitical risk risesGold, silver, and industrial metals react differently — safe-haven demand lifts precious metals while growth concerns pressure cyclicals The escalation between the U.S., Israel, and Iran has quickly spilled into the metals complex, where traders are separating markets into two distinct camps: safe-haven metals (gold, silver) and industrial or growth-sensitive metals (copper, aluminum, steel inputs). Historically, geopolitical shocks tied to the Middle East produce an immediate rotation into precious metals as investors look for assets perceived to hold value during conflict and energy volatility. Gold — the classic safe-haven trade Gold is typically the first metal to move in military escalations because it:Acts as a hedge against geopolitical instabilityBenefits when investors reduce risk exposure in equitiesOften gains when real interest rates fall or when inflation fears rise  Why this conflict matters for gold specifically:Rising oil prices can increase inflation expectations.Any flight to safety tends to boost demand for bullion and gold ETFs.Central-bank buying — already a structural trend in recent years — can amplify moves during geopolitical stress.  Market pattern: In past Gulf-related crises, gold often spikes quickly, then either stabilizes or continues higher depending on whether the conflict spreads or remains contained. Silver — gold’s cousin, but more volatile Silver usually follows gold higher — but it behaves differently because:Roughly half of demand is industrial, not just investment.It reacts to both risk sentiment and global growth expectations.  Current dynamic:Early risk-off flows tend to lift silver alongside gold.But if higher oil prices slow global growth, industrial demand expectations can limit gains versus gold. Translation for traders: silver often rises — but with larger swings and more two-way volatility. Industrial metals (copper, aluminum, steel): more complicated Industrial metals are less about safety and more about global growth and energy costs. Bullish pressures:Higher energy prices raise production costs (especially for aluminum and steel).Supply chains can tighten if shipping routes or insurance markets are disrupted.  Bearish pressures:Risk of slower global growth if oil spikes too far.Stronger U.S. dollar during risk-off periods weighs on dollar-denominated commodities.  Copper in particular tends to reflect the market’s “global growth” outlook — so if traders worry about economic fallout rather than supply disruption, copper can soften even while gold rallies. The oil/metal link: why this conflict matters  Oil and metals are closely connected:Mining and smelting are energy-intensive → higher oil and gas = higher production costs.Shipping costs rise when geopolitical risk increases.Inflation expectations support hard assets broadly.  If the Strait of Hormuz were disrupted — even temporarily — the resulting oil spike would likely:Push gold higher initiallyIncrease volatility in silverCreate mixed pressure for base metals (cost support vs. demand fears)

Strategic outlook: what markets will watch next. The next several days likely revolve around four market checkpoints:

• Iran’s response — especially any moves near shipping lanes.

• Shipping insurance and tanker traffic through Hormuz.

• OPEC+ emergency production decisions.

• U.S. and allied military posture in Gulf waters.

Historically, markets transition quickly from shock to probability analysis: traders will ask whether this becomes a contained military operation or evolves into a sustained supply-risk event.

bottom line: the U.S. and Israeli strikes on Iran have transformed a diplomatic standoff into a live geopolitical risk event — and markets are reacting accordingly.

The core market takeaway:

1) Oil is now trading on geopolitical risk rather than fundamentals alone.

2) The Strait of Hormuz remains the single most important variable for global energy pricing.

3) Even without a full disruption, the risk premium itself can tighten financial conditions through higher energy costs and increased volatility.

What this means for U.S. agriculture and commodity marketsDiesel, fertilizer, freight, and the dollar become the key “second order” channels from a Middle East shock into farm margins Even if the fighting stays geographically contained, a U.S.–Israel–Iran escalation can hit ag markets quickly through energy, logistics, and inputs. The biggest swing factor remains whether the conflict disrupts — or even just threatens — shipping through the Strait of Hormuz, where oil flows averaged about 20 million b/d in 2024 (roughly 20% of global petroleum liquids consumption)and also includes significant LNG volumes.  1) Diesel and on-farm fuel costs: the fastest pass-throughA crude spike typically feeds into diesel (fieldwork, grain hauling, rail/barge surcharges) faster than it reaches broader CPI.That matters heading into spring fieldwork: higher diesel costs can tighten cash flow and widen the breakeven spread for row crops, especially in high-haul-distance regions.  2) Fertilizer: natural gas + Middle East supply risk = volatilityFertilizer risk is less about Iran’s own volumes and more about regional energy pricing, shipping risk, and global sentiment. Urea and nitrogen markets, in particular, can reprice quickly when Middle East tensions threaten gas-linked production and export flows.Recent analysis of global shocks underscores how fertilizer-price spikes can reduce application and raise food-price risk when they persist. Industry commentary has also noted that Middle East conflict can ripple into fertilizer availability and pricing when gas facilities or trade routes are threatened.   Practical ag-market takeaway: If crude stays bid, watch UAN/urea quotes, ammonia benchmarks, and Gulf barge values— and whether retailers begin widening basis/offering shorter “validity windows” on pricing. 3) Ocean freight, insurance, and export competitivenessConflict risk boosts war-risk insurance and can reduce available tonnage or reroute shipping — which can lift freight costs and complicate timing for global grain/oilseed shipments.Shipping-focused reporting on the day of the strikes flagged immediate disruption risks and “soaring insurance costs,” alongside warnings to commercial vessels in the region. Separate market reporting said some oil majors/trading houses suspended shipments via Hormuz after the attacks — a signal of how quickly commercial behavior can change even without a full closure.   Ag linkage: Higher freight and insurance can weaken U.S. competitiveness into certain destinations if buyers can source closer barrels/tons — and can widen spreads between nearby and deferred values.  4) Biofuels and crush: the “corn/soy” feedback loopHigher crude can be supportive for ethanol and biodiesel/renewable diesel economics (all else equal), potentially firming:corn demand via ethanol marginssoybean oil values via biofuel blending economicsBut the same shock can raise costs (natural gas, chemicals, freight), and policy uncertainty still dominates longer-dated biofuels pricing in many models.  5) Macro overlay: stronger dollar vs. inflation fearsA geopolitical spike often triggers risk-off behavior (USD and Treasuries bid), which can be export-negative for U.S. grains if the dollar strengthens.Meanwhile, higher energy can reawaken inflation concerns and shift rate expectations — a channel that can hit ag through interest expense and working capital. “Watch list” for the next 72 hoursHormuz shipping behavior: vessel transits, insurer guidance, reported suspensions.Front-month crude and product cracks (especially ULSD/diesel).Fertilizer quotes (urea/UAN/ammonia) and retailer basis/availability signals.Freight markets: tanker and broader war-risk insurance read-through.USD moves and any shift in rates expectations.