A U.S. strike on Iranian nuclear facilities over the weekend, announced by President Donald Trump is expected to trigger a sharp reaction in global markets when they reopen, according to investors and market analysts. The move, which escalates U.S. involvement in the already volatile Middle East conflict, has injected fresh uncertainty into the global economic outlook.

Investors anticipate a knee-jerk rise in oil prices and increased demand for traditional safe-haven assets such as the U.S. dollar, gold, and Treasury’s. However, with limited details available and no formal damage assessment yet disclosed, market participants are treading cautiously.

Further, volatility, particularly in energy markets, is likely to intensify, though there remains some time for investors to assess the news before trading begins.

Oil and Inflation in Focus
The principal economic concern lies in the ripple effects on oil prices and inflation. A sustained rise in energy costs could erode consumer spending and reduce the likelihood of interest rate cuts from the Federal Reserve.

“This adds a complicated new layer of risk that we’ll have to consider and pay attention to,” said Jack Ablin, CIO of Cresset Capital. “This is definitely going to have an impact on energy prices and potentially on inflation as well.”

Since June 10, Brent crude futures have surged nearly 18%, recently touching a five-month high of $79.04 per barrel. Yet the broader S&P 500 has remained relatively flat, absorbing the early market shocks following Israel’s initial strikes on Iran on June 13.

Oxford Economics, in a pre-strike analysis, modeled three potential scenarios ranging from de-escalation to a full shutdown of Iranian oil output and even the closure of the Strait of Hormuz. In the worst-case scenario, oil prices could soar to $130 per barrel – pushing U.S. inflation to 6% by year-end. Such a spike would heavily compress consumer purchasing power and likely eliminate any prospects of monetary easing this year.

Jamie Cox, Managing Partner at Harris Financial Group, echoed the view that oil prices would surge in the short term, though he predicted some stabilization if the strikes ultimately push Iran toward seeking a diplomatic resolution with Israel and the U.S.

Historical Context Offers Some Relief
Still, while economists warn that a dramatic rise in oil prices could further destabilize an already strained global economy, especially in light of the Trump-era tariffs, market history suggests that investor anxiety may not linger for long.

Data from Wedbush Securities and CapIQ Pro shows that in previous geopolitical flashpoints, such as the 2003 Iraq invasion and the 2019 attacks on Saudi oil infrastructure, equity markets initially declined but rebounded within months. On average, the S&P 500 dropped 0.3% in the three weeks following such events, but gained 2.3% two months later.

Dollar’s Dilemma, Hormuz Flashpoint; Washington Urges China to Step In
While the recent escalation in the Middle East raises alarm bells for global oil markets, it has also thrown the U.S. dollar into uncertain territory. After a year marked by mounting concerns over weakening U.S. exceptionalism, the greenback has been on a downward trajectory. Yet, in the event of deeper U.S. involvement in a military conflict between Iran and Israel, some analysts believe the dollar could temporarily gain from a flight to safety.

Also, at the heart of the geopolitical anxiety is the Strait of Hormuz – a strategic chokepoint through which roughly 20% of global crude oil passes. On Sunday, U.S. Secretary of State Marco Rubio called on China to dissuade Iran from taking any aggressive steps to close the strait, illustrating the fragile balance of power that now ties the global oil supply to diplomacy.

“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil,” Rubio said in an interview. With China being Iran’s largest oil customer and a long-standing diplomatic ally, Washington is seeking to apply pressure through Beijing rather than escalating military tensions outright.

However, as expected, following U.S. airstrikes on three key Iranian nuclear sites, Iran’s foreign minister responded defiantly, warning that the Islamic Republic “reserves all options to defend its sovereignty.” Reports from Iranian state media later indicated that Iran’s parliament had backed the closure of the Strait of Hormuz, although the final call rests with the country’s national security council.

Should Tehran move to block the narrow waterway between Iran and Oman, the ramifications would be severe. The Energy Information Administration (EIA) estimates that 20 million barrels per day (equivalent to a fifth of global oil consumption) passed through the strait in 2024. Analysts from Goldman Sachs and Rapidan Energy warn that oil prices could easily breach the $100 per barrel mark if such a disruption is prolonged. JPMorgan, however, views the likelihood of a full closure as low, suggesting it would constitute a direct act of war in Washington’s view.

Calling the move “economic suicide,” Rubio emphasized that Iran’s own energy exports rely on the very strait it is threatening to shut. Iran, the third-largest oil producer in OPEC, currently pumps 3.3 million barrels per day and exported 1.84 million bpd last month – most of it to China, according to data from energy analytics firm Kpler. Around half of China’s seaborne crude imports originate from the Persian Gulf, making the strait a critical artery for both economies.

“It would be a self-inflicted wound,” noted Matt Smith, lead oil analyst at Kpler. “Cutting off the Strait would stop the flow of its crude exports to China, halting a key revenue stream.”

Rubio reiterated that the U.S. retains military options should Iran attempt to carry through with the threat. “It would hurt other countries’ economies a lot worse than ours,” he said. “It would be, I think, a massive escalation that would merit a response—not just by us, but from others.”

The U.S. Fifth Fleet, based in Bahrain, is tasked with ensuring freedom of navigation in the Persian Gulf. While oil traders generally believe the U.S. Navy could swiftly counter any Iranian attempt to close Hormuz, some analysts caution against underestimating the risk.

“They could disrupt, in our view, shipping through Hormuz for a lot longer than the market thinks,” said Bob McNally, founder of Rapidan Energy and a former energy advisor to President George W. Bush. Rather than the widely held belief that any blockade could be resolved in a matter of hours or days, McNally warned it could take weeks or even months.

War Clouds and Economic Ripples; Is the U.S. Economy Headed for a Shock?
As global markets remain on edge from rising geopolitical tensions, economists are warning that the Israel-Iran conflict now teetering on the edge of a broader regional war could deal a significant blow to the U.S. economy. While the fighting is unfolding thousands of miles away, the economic reverberations may land squarely on American consumers and businesses already struggling with inflation and tariff-related costs.

Federal Reserve Chair Jerome Powell, addressing reporters after the central bank’s most recent policy meeting, acknowledged the growing concern. “What’s tended to happen is when there’s turmoil in the Middle East, you may see a spike in energy prices, but it tends to come down,” Powell said.

Drawing a historical comparison, he noted that while past disruptions, such as those during the 1970s oil shocks, had long-lasting inflationary effects, today’s economic ecosystem is different. “The U.S. economy is far less dependent on foreign oil than it was back in the 1970s,” he added, referencing events like the Iranian Revolution and the Arab oil embargo that triggered global fuel shortages and price spikes.

Still, not all economists share Powell’s measured optimism. JPMorgan economists, in a recent client note, warned that the global economy is likely to face “multiple shocks” this year, with the potential for a Middle East war ranking high on the list.

The Last Bit, Strategic Gamble or Global Miscalculation?

The U.S. strike on Iranian nuclear sites may be framed as a bold assertion of strategic dominance, but it also exposes a fragile global economic order to unpredictable aftershocks.

As the dust settles, markets are bracing not just for volatility but for an entirely new paradigm of risk. Oil prices are already reacting, inflationary pressures are likely to intensify, and consumer sentiment may take another hit at a time when central banks were cautiously eyeing monetary easing. If the Strait of Hormuz is even partially compromised, the economic consequences will be global, not regional.

From a geopolitical lens, the confrontation reveals how tightly intertwined diplomacy, defense, and economics have become.

The U.S. urging China to rein in Iran shows a growing multipolar interdependence where geopolitical rivalries must give way to shared interests or risk global economic destabilization. But diplomacy is not guaranteed to succeed. Iran’s threats, whether bluster or blueprint, expose the vulnerability of the global oil infrastructure and the limits of Western deterrence. Any miscalculation here could draw regional powers and their allies into a wider conflagration.

From an economic standpoint, even the perception of instability around the Strait of Hormuz is enough to jolt oil benchmarks and stoke inflation fears. Add the compounding impact of existing tariffs, high household debt, and weak real wage growth, and it becomes evident that the consumer is increasingly exposed. While history shows markets can recover from geopolitical shocks, the current global backdrop, marked by trade wars, deglobalization, and overlapping crises, suggests this time may be different.

Finally, this episode is more than a single military maneuver; it is a litmus test for how prepared the world is to handle a geopolitical and economic flashpoint in tandem. Therefore, whether this becomes a catalyst for diplomacy or a trigger for broader conflict will likely define the global economic headwinds in the months ahead.