U.S.-Iran Conflict Ignites Global Market Sell-Off and Oil Price Surge
European equities and U.S. stock futures plunged sharply on Friday, as escalating tensions in the U.S.-Iran war triggered fresh anxieties over global oil supplies. This geopolitical turmoil prompted traders to rapidly unwind expectations for interest rate cuts and heightened concerns about the broader economic impact worldwide.
Oil Prices Skyrocket to Multi-Year Highs
Benchmark global and U.S. crude oil prices surged to their highest levels in almost two years, with U.S. Treasury yields falling for a fifth consecutive day. Global stock indices were poised for their most significant weekly decline in a year, reflecting widespread investor unease.
Futures for the U.S. S&P 500 index dropped 0.62%, while Nasdaq futures fell 0.75%. In Europe, the STOXX 600 index declined 1.04% during volatile trading, erasing an earlier gain of nearly 0.5% as oil prices showed signs of stabilization.
Qatar Issues Stark Warning on Energy Markets
In a dire forecast, Qatar's energy minister warned in a Financial Times interview that all Gulf energy producers could halt exports within weeks, potentially driving oil prices to $150 per barrel and inflicting severe economic damage globally. Susannah Streeter, chief investment strategist at Wealth Club, noted, "The warning from Qatar's energy minister that a prolonged conflict could bring down economies around the world has again rattled financial markets."
U.S. crude oil prices jumped over 5% to $86.22 a barrel, marking the highest level since April 2024. Brent crude also rose to nearly $89.48 a barrel, its peak in almost two years, and was on track for a 23% weekly surge—the largest such increase since the COVID-19 crisis disrupted the global economy in 2020.
Traders Slash Bets on Interest Rate Cuts
Money market traders significantly reduced their expectations for U.S. Federal Reserve rate cuts, now predicting only 30 to 35 basis points of reductions this year, down from approximately 55 basis points a week ago. U.S. 10-year Treasury yields increased by 3 basis points to 4.173%, heading for a weekly rise of 21 basis points, the most substantial move since April 2025.
The impact of energy supply fears was particularly acute in Europe, which relies heavily on oil and gas imports. Traders now anticipate the European Central Bank might raise interest rates by year-end, reversing previous bets on cuts. Similarly, expectations for Bank of England rate cuts diminished to a roughly 50% chance of one cut this year, from two cuts projected in February, severely affecting British bond markets.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, explained, "Oil is firmly in the driving seat, with moves feeding straight through into inflation expectations and the rate outlook. We'd expect volatility to remain elevated while that uncertainty persists."
Stocks Slide as Dollar Gains Amid Safe-Haven Demand
The Middle East conflict convulsed global markets throughout the week, driving investors toward the safety of cash as they adjusted to the possibility of a prolonged war. The U.S. dollar index, which measures the currency against six peers, rose 0.33% on Friday and was set for a 1.8% weekly increase, the largest since September 2024.
The MSCI all-world stock index was on track to drop 2.9%, its biggest weekly fall since March 2025. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3% and was headed for a 6.6% weekly decline, the steepest since March 2020.
Market attention turned to upcoming U.S. economic data, including non-farm payrolls, due for release. Meanwhile, spot gold remained relatively stable at $5,086 an ounce, though it faced a 3% weekly decrease.
