It’s official. The United States has bombed Iran’s nuclear enrichment sites, opening a volatile new chapter in a conflict that markets were hoping would stay regional.
After months of escalating proxy warfare between Israel and Iran, Donald Trump’s decision is more than a direct military action.
It could be the end of economic assumptions that have guided markets for years.
From oil spikes to inflation fears, from the Strait of Hormuz to Beijing’s bargaining table, the shockwaves are forming.
Whether this turns into a global crisis or just another short-lived spike depends on what happens next and how markets, central banks, and governments respond.
How far could this conflict go?
The airstrikes were targeted and precise. Trump hit three nuclear sites in Iran, after giving Israel space to weaken Tehran’s long-range missile capability.
Source: Bloomberg
Iranian leaders have already made threats that they will retaliate but how this will be done is yet to be seen. Iran’s economy is fragile enough to not be able to sustain a prolonged conflict with both the US and Israel.
From the US side, there are no signs of a full-scale invasion or deployment of American troops so far. And public opinion doesn’t support one. The majority of Americans oppose a war with Iran.
And Trump’s history lines up with that sentiment. Limited strikes, big announcements, no boots on the ground, so far.
This isn’t the first time. The assassination of Qasem Soleimani in 2020 followed the same playbook: remove a high-value target, then pull back.
This time, he’s betting on precision power to pressure Iran and avoid prolonged war. But while the military risk may be calculated, the economic fallout is much harder to control.
Oil is still the red line
The global economy’s vulnerability isn’t about Iran itself. It’s about geography.
The Strait of Hormuz, a 21-mile-wide channel, carries 20% of the world’s daily oil supply and a massive chunk of liquefied natural gas.
Iran has repeatedly threatened to close it even before the US attacks. It’s done so before in limited ways such as seizing tankers, laying mines, harassing vessels with speedboats.
During the 1980s “Tanker War,” and again in incidents as recent as 2023, Iran disrupted Gulf shipping to pressure adversaries.
If Iran now acts more forcefully, it has the means to block or severely disrupt traffic. The IRGC could strike ships, mine the waterway, or simply make it too risky for insurers to greenlight passage.
Threats have already been made against European fuel ships.
Bloomberg Economics forecasts that a full shutdown of Hormuz would send oil past $130 per barrel.
That could drive US inflation back to 4% and likely force the Federal Reserve to delay or cancel expected rate cuts.
It would also crush growth in countries like Germany, Japan, India, and China, who are heavily exposed to energy imports.
Yet history suggests any full shutdown of the Strait would be short-lived. During the 1991 Gulf War, Brent crude doubled in weeks, only to normalize months later.
The 2003 Iraq War and 2022 Ukraine invasion caused similar spikes that reversed quickly. Why? Spare capacity and rapid US military response.
Source: Reuters
Even without a full closure, early signs of market reaction are clear. After the strikes, crude oil derivatives jumped 8.8%.
Who gets hurt and who gains?
The US economy is better positioned than most. After the shale boom, America became a near-balanced oil trader, exporting and importing roughly the same amount.
This means when oil prices rise, US oil companies benefit, while transportation and manufacturing companies take the hit. But overall, the economy stays steady.
Inflation may rise, but recession risk stays low.
Russia, on the other hand, could benefit from the chaos. As a major exporter, higher oil prices help Moscow fund its war in Ukraine.
With Iran’s supply under pressure, Russia could become an even more important partner for countries looking to skirt US influence, especially China.
Speaking of China, it’s now in a bind. Nearly all of Iran’s oil exports go to Beijing, and China has enjoyed steep discounts of around $6 per barrel cheaper than market prices.
Source: Newsweek
If that supply is interrupted, China won’t just have to find new sources, it will have to pay full price. That’s a direct blow to Chinese industry and leverage, right when its economy is struggling to recover.
Europe is exposed too. While it imports less oil directly from Iran or through Hormuz, it depends on stable global prices.
If Qatar’s LNG exports are disrupted, which also flow through Hormuz, European gas prices could spike, especially in winter.
With the eurozone economy already flirting with stagnation, this would compound existing pressures from higher interest rates and weak consumer demand.
Is the market overreacting or underestimating?
Even if Iran disrupts Hormuz, oil is a global commodity.
Gulf oil exporters do have some room to reroute. Saudi Arabia operates a 5 million barrel-per-day pipeline from its Gulf fields to the Red Sea.
The UAE has a 1.5 million barrel-per-day line to Fujairah, bypassing Hormuz.
But Iraq, Kuwait, and Qatar, all 3 who are key exporters, have no viable alternatives. A full shutdown would hammer their revenues and global supply.
Oil is fungible, meaning that it can be shipped anywhere with minimal cost differences.
Europe could buy more from Latin America or the US, while Asia shifts toward Saudi Arabia or Iraq.
But this ignores how markets work in practice. Oil demand is inelastic in the short term. People still drive, companies still ship, and governments still heat buildings, regardless of price.
This means even a small disruption can cause a big spike in price. A few tankers pulled from the Gulf could cause panic that ripples far beyond the Persian coastline.
It also ignores geopolitical psychology. Investors hate uncertainty.
And right now, they’re looking at a US president who may bomb again, an Iran that feels cornered, a volatile Israeli war front, and multiple points of potential failure across the global energy map.
What happens next?
There are three likely paths from here.
In the most limited case, Iran retaliates with minor attacks on US bases or assets, and the conflict stays contained. Oil rises moderately, inflation ticks up, but central banks stay the course.
In a mid-range scenario, Iran targets Gulf infrastructure or commercial tankers. The Strait of Hormuz becomes semi-operational. Oil spikes into the $110–$120 range.
The Fed, ECB, and others freeze rate cuts, while global growth stalls.
In the worst case, Hormuz shuts down entirely. Crude surges past $130. Inflation hits 4–5%.
Interest rates stay high through 2025. Europe and Asia face energy crises. China scrambles to source oil at higher prices. Russia benefits. Markets spiral.
One thing is certain however: the era of risk-free geopolitics is over. Welcome back to volatility.
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