Reuters – The United States and Israel initiated strikes on Iran on Saturday, targeting its leadership and plunging the Middle East into a new conflict. President Donald Trump stated that this action aims to eliminate a security threat and provide Iranians with an opportunity to overthrow their rulers. The strikes have unsettled nearby oil-producing Gulf Arab countries, raising fears of escalation. In response, Tehran launched missiles towards Israel.

This conflict could significantly impact world markets in several ways:

Oil Spike

Oil is a critical indicator of Middle East tension. Iran, a major oil producer, is positioned across the oil-rich Arabian Peninsula through the Strait of Hormuz, a passage for about 20% of the global oil supply. Conflict in this region could restrict oil flow into the global market, resulting in increased prices. On Friday, Brent crude was traded at approximately $73 a barrel, marking a 20% rise this year.

Several oil majors and top trading houses have suspended crude oil and fuel shipments via the Strait of Hormuz due to the attacks, according to four trading sources on Saturday. William Jackson, chief emerging markets economist at Capital Economics, noted that even if the conflict is contained, Brent prices might reach around $80, the peak during last June’s 12-day war in Iran. A prolonged conflict affecting supply could push oil prices to about $100, potentially adding 0.6-0.7 percentage points to global inflation, Jackson added.

Market Volatility

The conflict is anticipated to heighten volatility across global markets, which have already experienced significant fluctuations this year due to Trump’s tariffs and a sharp tech selloff. The VIX volatility index has risen by a third this year, and implied U.S. bond volatility has increased by 15%. Currency markets are also expected to be affected. During the June war, the dollar index fell by around 1%, though this decline was short-lived, unwinding after three or four days.

According to CBA analysts, the extent of the dollar’s decline will depend on the perceived duration and impact of the conflict. If the conflict proves prolonged and disrupts oil supplies, the U.S. dollar could strengthen against most currencies except the Japanese yen and Swiss franc. The U.S., as a net energy exporter, stands to benefit from higher oil and gas prices resulting from disrupted supply.

Israel’s shekel is anticipated to experience volatility as well, given Iran’s swift retaliation against Israel on Saturday. The shekel fell 5% at the start of the June war and reacted similarly after Israel struck Iran’s Damascus consulate in April 2024 and when Iran launched missiles at Israel that October. While previous episodes were short-lived and followed by quick rebounds, JPMorgan suggests this time could be different if the conflict and increased market risk premia persist. This would particularly be the case if confrontation with Iran also leads to more intensive operations against Iran’s proxies, the bank noted.

Safe Havens

The Swiss franc, recognized as a safe haven during turmoil, is expected to face upward pressure, posing challenges for the Swiss National Bank. It has appreciated 3% against the U.S. dollar this year. Investors might also turn to gold, which has seen a record increase of 22% in 2026, and silver, which has similarly gained. The conflict might also boost demand for U.S. Treasuries, whose yields have been declining in recent weeks.

Bitcoin, however, no longer viewed as a safe haven, fell 2% on Saturday and has lost more than a quarter of its value over two months.

Middle East Markets

Trading activities in Middle Eastern bourses, including those in Saudi Arabia and Qatar on Sunday, will offer initial indicators of investor sentiment. These markets are closely tied to oil prices, and an escalating conflict could affect regional economies. “I suspect markets will be down if these hostilities continue through the day,” said Ryan Lemand, CEO and co-founder of Neovision Wealth Management. Depending on the conflict’s scale, Gulf equities could drop by 3-5%, he added. Saudi Arabia’s benchmark stock index fell 1.3% over five days through Thursday, marking its second consecutive week of declines, while Dubai’s main market, reopening on Monday, has also seen declines over the past two weeks.

Airline and Defense Stocks

Global airlines canceled flights across the Middle East on Saturday, and their stocks could face pressure if the conflict spreads, leading to more airspace closures. European weapons manufacturers, having seen a 10% rise this year, might experience increased demand.