A year after US President Donald Trump’s sweeping tariff policy disrupted global markets, a far more complex and far-reaching shock has taken hold. The ongoing Iran war, now entering its second month, has triggered a severe oil price surge that is rapidly reshaping investor behavior and reversing many of the dominant market trends seen over the past year.
What began as a geopolitical conflict has evolved into a full-scale energy shock, sending ripples through equities, bonds, currencies, and emerging markets. The shift has forced investors to abandon strategies that once defined the post-tariff era, replacing them with a more defensive and uncertain outlook.
In April last year, Trump’s so-called “Liberation Day” tariffs introduced a policy-driven shock that shook investor confidence and triggered volatility across global assets. That episode, however, was largely contained within the realm of trade policy and economic expectations.
The current crisis is fundamentally different. The Iran war represents an external geopolitical shock with direct implications for energy supply — a factor that touches nearly every corner of the global economy.
At the center of the disruption is the Strait of Hormuz, a critical maritime chokepoint through which roughly one-fifth of the world’s oil supply typically flows. With the waterway now effectively restricted to minimal traffic, global energy markets are facing a severe supply constraint.
Analysts warn that if the situation persists, oil prices could surge to between $150 and $200 per barrel in the coming weeks, levels that would significantly strain both developed and developing economies.
The immediate impact of the oil shock has been felt most acutely in global equity markets. Since the conflict began, approximately $14 trillion in market value has been erased as investors rapidly reassess risk.
The selloff marks a sharp reversal from earlier optimism fueled by the artificial intelligence boom and expectations of lower interest rates. Those factors had supported a broad rally across global stocks, encouraging investors to take on more risk.
That sentiment has now evaporated. Rising oil prices have reignited inflation concerns, complicating the outlook for central banks and undermining expectations of monetary easing.
Global equity benchmarks have posted steep losses, with declines particularly pronounced in regions more exposed to energy imports and geopolitical instability.
Fixed-income markets have also experienced significant volatility. As oil prices climb, investors are increasingly concerned that inflation will remain elevated for longer than previously anticipated.
This has forced a rapid repricing of interest rate expectations, leading to sharp swings in bond yields. Traders who had positioned for a more accommodative monetary policy environment are now adjusting to the possibility that central banks may need to keep rates higher for longer.
The result has been heightened uncertainty across bond markets, with increased sensitivity to both economic data and geopolitical developments.
One of the clearest indicators of the shifting market landscape has been the strength of the US dollar.
The Bloomberg Dollar Spot Index recorded its strongest monthly gain since July, rising 2.4% as investors sought safety amid the turmoil. The dollar’s dual role as a reserve currency and a haven asset has made it particularly attractive during periods of global stress.
Additionally, the United States’ position as the world’s largest oil producer has provided further support for the currency, insulating it from some of the negative effects of rising energy prices.
The dollar has appreciated against all major currencies, prompting interventions from central banks in various countries attempting to stabilize their exchange rates.
Despite the global downturn, US equities have performed slightly better than their international counterparts. The S&P 500 declined 5.1% in March, a notable drop but less severe than losses seen in Europe and Asia.
This relative resilience is largely attributed to the strength of the US energy sector, which has benefited from higher oil prices. Energy stocks have provided a buffer against broader market declines, helping to limit overall losses.
In contrast, global equity indices have suffered steeper declines, reflecting greater exposure to energy costs and proximity to the geopolitical conflict.
Emerging markets, which had attracted significant capital inflows in the wake of last year’s US-focused selloff, are now experiencing a sharp reversal of fortunes.
The surge in oil prices has hit these economies particularly hard due to their reliance on energy imports. Higher fuel costs are straining trade balances, weakening currencies, and dampening growth prospects.
A key index tracking developing-nation stocks fell 13% last month, marking its worst performance in six years. Meanwhile, emerging-market currencies declined nearly 3%, reflecting capital outflows and reduced investor confidence.
The shift highlights the vulnerability of these markets to external shocks, especially those linked to energy supply and geopolitical risk.
The current environment has forced a broad reassessment of investment strategies. Trades that were once highly popular — including bets on global growth, emerging markets, and non-US assets — are being unwound at a rapid pace.
Market participants are increasingly prioritizing liquidity, stability, and exposure to energy-producing economies. This shift has reinforced the dominance of the US dollar and US assets, at least in the short term.
However, some investors believe this trend may not be permanent.
Prospects for a reversal
Recent signals from both the United States and Iran suggest a possible path toward de-escalation. President Trump indicated that US involvement in the conflict could wind down within two to three weeks, raising hopes for a resolution.
Even if a ceasefire is achieved, the normalization of oil flows through the Strait of Hormuz is expected to take time. Infrastructure damage, security concerns, and logistical challenges could delay a full recovery in supply.
Analysts argue that a sustained easing of the energy crisis could trigger a reversal of current market dynamics. The dollar may weaken, and non-US equities could regain momentum as risk appetite returns.
Despite the potential for short-term relief, the longer-term implications of the crisis remain unclear.
Some investment managers caution that structural factors — including high valuations in US equities and underlying weaknesses in the dollar — could reassert themselves once the immediate shock subsides.
Others warn that a prolonged conflict could push oil prices even higher, increasing the risk of a global economic slowdown.
For now, global markets remain in a state of heightened sensitivity to geopolitical developments. Each new headline has the potential to shift sentiment, underscoring the fragile nature of the current environment.
The Iran war has demonstrated how quickly market narratives can change, replacing optimism with caution in a matter of weeks.
As investors navigate this evolving landscape, the interplay between energy prices, inflation, and geopolitical risk will continue to define the direction of global markets in the months ahead.
