Markets on edge as US-Iran tensions escalate and investors brace for retaliation

Global markets opened the week under pressure as geopolitical risks surged following unprecedented US airstrikes on Iran’s nuclear facilities. With Tehran vowing retaliation and the Middle East facing heightened instability, investors are recalibrating positions across asset classes. Meanwhile, currency, commodity, and equity markets are showing classic defensive patterns amid the uncertain backdrop.

Geopolitical flashpoint: Middle East on the brink

The US launched coordinated airstrikes on Iran’s key nuclear enrichment sites at Fordow, Natanz, and Isfahan, deploying over 125 aircraft, Tomahawk missiles, and bunker-busting ordnance. The strikes marked Washington’s first direct military confrontation with Iran in decades, escalating regional tensions to new heights.

• Iran’s response remains pending, with officials warning the “timing, nature, and scale” of retaliation will be determined by military leadership.
• Israel extended its assault beyond Gaza, striking military targets deep inside Iran, including missile infrastructure and radar sites.
• Global maritime routes, especially the Strait of Hormuz, are under heightened scrutiny amid fears of supply disruptions.

Oil and energy markets: Supply concerns mount

Energy markets are front and center:

• Brent crude surged as much as 5.7% in early trading before settling with a 2% gain near $75 per barrel.
• West Texas Intermediate (WTI) advanced 1.7%, reflecting fears of supply chain vulnerabilities.
• Two supertankers reversed course near the Strait of Hormuz as regional shipping risks intensified.
• Analysts warn Brent could briefly spike toward $110 per barrel if Iranian retaliation disrupts flows by even 10%.

While physical disruptions to oil supply have yet to materialize, the risk premium is firmly embedded, keeping energy prices elevated.

Currency markets: Dollar gains, haven flows mixed

Currency markets reflected defensive positioning:

• The Bloomberg Dollar Spot Index rose 0.3%, supported by haven demand and deleveraging flows.
• The Japanese yen weakened 0.6%, while the euro slipped 0.3%.
• The Israeli shekel remained under significant pressure, posting its weakest levels since April.
• Traders remain focused on whether US-Iran tensions will trigger broader currency volatility.

Equities retreat but remain resilient

Equities declined globally, but losses were contained:

• S&P 500 futures fell 0.3%, with the index still less than 3% off recent record highs.
• Euro Stoxx 50 futures dropped 0.5%, while Japan’s Nikkei 225 declined 0.2%.
• The MSCI Asia Pacific Index touched its lowest since early June.
• Asian shipping and defense stocks gained on higher freight and military demand expectations, while airlines faced selling pressure from elevated oil prices.

Market reaction remains measured, with prior positioning adjustments and hedging activity limiting the scope for deeper drawdowns—at least in the short term.

Commodities and crypto: Mixed reactions

• Gold retreated slightly, down 0.3% to $3,359 per ounce, though it remains near recent highs amid lingering geopolitical uncertainty.
• Bitcoin rebounded 1.7% to $101,242, stabilizing after dipping below $100,000 earlier in the session.
• Ethereum rose 2.2%, though both assets remain highly sensitive to risk-off sentiment and liquidity shifts.

Outlook: All eyes on Iran’s next move

Market participants remain focused on:

• Iran’s promised retaliation and its potential to disrupt energy markets or regional security further.
• The durability of the US dollar’s haven bid and whether technical breakouts lead to a sustained dollar rally.
• Central bank responses, with Fed officials signaling rates remain “in a good place,” but markets pricing rate cuts for later in the year.
• Broader macro data, with European and US indicators expected to reveal the extent of trade war-induced factory weakness.

The global backdrop remains fragile, dominated by heightened geopolitical risk, oil market uncertainty, and cautious investor positioning. While markets have avoided outright panic, volatility is likely to persist, with headline sensitivity at extremes. Investors are advised to maintain defensive allocations, hedge currency exposure, and monitor geopolitical developments closely.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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