The war between Israel and Iran also hits the markets: stocks in the red, oil skyrocketing, and risk-off mode. What’s happening?
The joint attack by Israel and the US against Iran puts the markets on high alert: waking up this Monday, March 2, is characterized by strong uncertainty about the future, with consequent turbulence on the main stock exchanges. A similar situation, by the book, leads investors to reposition their capital: fleeing from volatility in search of stability. Let’s see in detail what is happening.
Israel, US, and Iran: escalation on the horizon?
It all started over the weekend: on Saturday, February 28, Israel and the United States carried out a series of targeted attacks in Iran, achieving their strategic goal in less than 24 hours: eliminating the Iranian Supreme Leader, Ayatollah Ali Khamenei.
The Islamic Republic’s response was not long in coming: a retaliation was launched from Iranian territory with direct bombings against the Jewish state and the Arab monarchies of the Gulf. Some of the latter, Saudi Arabia in particular, have declared their willingness to take the field alongside their US allies: the Iran-Israel clash risks turning into a regional war. How are the markets reacting?
Watchword: risk-off
Geopolitical chaos of this magnitude inevitably pushes investors toward a risk-off approach, that is, a generalized flight from the most volatile assets, in search of traditionally more stable havens.
In this regard, many analysts believe that this attitude depends almost entirely on the duration of the conflict. Specifically, if the crisis between Israel and Iran were to be resolved quickly, the downturn we are witnessing could take on a transitory nature and return “to normal” relatively soon.
But if, on the contrary, the operation turns into an attempt at regime change—in jargon, regime change—lasting three to five weeks, the markets could react in a decidedly worse way.
At that point, we would be facing a full-blown war between military powers and would have to deal with all the ensuing consequences. The main one: a prolonged interruption of global energy supplies—we’ll soon see why.
European stock markets and Wall Street in the red
The reaction of the main global indices was immediate and quite heavy. Europe opens the week in negative territory: the Stoxx Europe 600 (SXXP) index—the European equivalent of the S&P 500 for the US—is currently dropping by almost 2%.
In particular, the Frankfurt DAX is doing the worst, losing 2.7%, preceded by the FTSE MIB in Milan, which is recording a -2.55%. A slightly better picture for the CAC 40 in Paris, down 2.25%, while the FTSE 100 in London is giving up “only” 1.5%.
Overseas, the picture is certainly no better. Looking at the pre-market futures, Wall Street is bracing for a red start: the Dow Jones is losing about 1%, the S&P 500 marks a -1.1%, while the technology sector of the Nasdaq takes the hardest hit with a -1.44%.
Gold, Silver, and DXY
As per the textbook in panic situations, capital is shifting from volatility to stability. Gold is recovering to its late-January levels, when it updated its ATH: having touched $5,400 an ounce, it records a 3.9% growth since the close on Friday, February 27, before the bombings began. Silver is also following suit, marking a +5.3% since last Friday.
On the currency front, the US dollar is regaining ground: the DXY—the index that measures the strength of the greenback against a basket of six major fiat currencies—has gained 0.6% since February 27.
These data seem to confirm the search for safe havens by global financial operators: “first we preserve capital, then we think about strategies“.
Focus on the crypto market
On Saturday, while stock exchanges around the world were closed, the crypto market immediately priced in the start of the bombings: Bitcoin and Ethereum took the hit, touching $62,300 and $1,800, respectively.
However, demand made itself felt almost immediately: over the weekend, BTC and ETH recovered the lost ground, returning—as we write—to the $67,000 (+6.4%) and $1,960 (+8%) area. Solana drew a similar trajectory: on February 28, it touched a low of $77, but from then until today, it has gained 9%, climbing back to $85.
Generally speaking, the Total Crypto Market Cap—the total capitalization of the sector—shows a +0.6% since February 27, remaining substantially unchanged despite the violent internal fluctuations.
And what about institutional investors? While we wait for the data on Spot ETF inflows which, due to the closure of traditional markets over the weekend, are not yet available for today, we already have one certainty: Michael Saylor has announced yet another Bitcoin purchase by Strategy (MSTR); the exact figures will arrive later this week.
Strait of Hormuz closed: why is it so important?
Earlier we mentioned that one of the main consequences of a lasting conflict in this area of the world would involve a prolonged halt to energy supplies. Why is that?
Just one answer: the Strait of Hormuz. Iran has warned ships not to cross this crucial bottleneck, south of the country, which connects Kuwait, Bahrain, Qatar, and the United Arab Emirates to the Arabian Sea and, therefore, to the Indian Ocean.
In other words: between 20% and 30% of the world’s oil and gas passes through this strait. Global crude prices have already exploded following the attacks. Brent crude futures—the global benchmark for oil prices—jumped 10% on Monday alone, exceeding $82 a barrel. Over the weekend, in fact, three commercial ships were reportedly attacked. The same goes for natural gas prices, up 25%.
To try to stem the crisis, the OPEC+ group of producing countries agreed as early as Sunday to increase production to 206,000 barrels a day: an attempt to cushion the price hike by leveraging the law of supply and demand.
Inflation knocks at the door
The ghost of inflation is once again roaming the corridors of central banks: if oil and gas were to remain at these levels due to the logistical blockade in the Middle East, we could witness a return of imported inflation—just like during the first two years of the Russian-Ukrainian conflict.
At that point, central institutions—the Federal Reserve first and foremost—might have to recalibrate their stance and revise their interest rate plans: at the time of writing, according to the FedWatch tool, the chances of the next FOMC seeing a cut are reduced to 2.5%.
How will events unfold? What will happen in the next few days? Sign up on Young Platform, and we’ll tell you all about it!
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