Wall Street is experiencing extreme volatility with stock prices changing directions at almost all news developments linked to the US-Israel war on Iran. The focus remains on oil prices, dollar strength, and the flight of capital to safe-haven assets.
On Tuesday, US market indices initially opened significantly lower but recovered after President Trump announced that the US Navy would escort tankers through the Strait of Hormuz and offer government insurance and financial security guarantees for maritime trade, particularly in the energy sector, in the Gulf region.
The S&P 500 closed 0.94% higher after falling 2.49% intra-day, with the Dow and Nasdaq Composite also closing higher by 0.83% and 1.02%, respectively. The Dow Jones Industrial Average fell by 400 points, recovering from a decline of over 1,250 points earlier in the session. On Wednesday, US stock futures are trading lower with all three leading indices down by around 0.5%.
“The Iran crisis has entered a dangerous new phase, and markets are reacting accordingly. With oil surging, volatility spiking, and investors rushing into traditional safe havens, we could see heightened turbulence over the coming days and weeks. Much will depend on whether diplomatic channels reopen quickly, but for now, risk sentiment remains fragile,” says Lukman Otunuga, Senior Market Analyst at global broker FXTM.
One of the main reasons influencing market sentiment among global investors is that the US-Israel war on Iran might prolong, potentially slowing down economic growth and increasing inflation. This is reflected in the rising US 10-year Treasury yield, which stood at around 4.06% on Wednesday after increasing for two consecutive sessions.
Even the US Fed’s aggressive rate cut stance expectations seem to be fading now. Investors expect the central bank to hold rates at the end of its next two-day meeting on March 18, according to the CME Group’s FedWatch tool. New York Federal Reserve President John Williams indicated that the U.S. central bank is likely to implement additional interest rate cuts if inflation pressures ease, although he did not discuss the economic impact of the Iran conflict.
Oil Prices
What is troubling investors is also the rise in oil prices. On Friday, before the United States and Israel launched coordinated military strikes against Iranian targets, Brent crude closed at $72.48 per barrel. Brent trades at approximately $82.60 on the 5th day of the onslaught, nearly 14% higher since the war began.
The Middle East conflict affects the U.S. stock market primarily through energy markets due to the region’s substantial crude oil supply. About 20% of global oil transit occurs through the Strait of Hormuz, near Iran.
Higher sustained oil prices may increase the risk of inflation. “US inflation remains sensitive to fuel costs. Gas prices feed directly into consumer sentiment and inflation expectations. If crude pushes toward $90 or $100, the pass-through into CPI becomes unavoidable,” says Nigel Green, CEO, deVere Group.
The impact of higher oil prices for a longer period is also on stock prices. Sustained rises in oil prices affect transportation, logistics, and manufacturing costs, ultimately impacting consumer prices. Increased oil prices lead to higher freight costs and distribution expenses, which can tighten corporate margins or result in higher prices for consumers.
For the global investors, all eyes will be on the Strait of Hormuz situation. Oil supply constraints will be reduced as military operations in the Middle East come to an end, and Trump also said that oil prices will fall.
Global Markets
Markets globally are under pressure on Wednesday, fueled by the US-Israeli escalating conflict with Iran.
Hong Kong equities plunged over 600 points, or 2.6%, in Wednesday morning trade, marking a third straight decline and nearing an 11-week low. In China, shares dropped to a two-week low following February’s official PMI, indicating weaknesses in manufacturing and services after an extended Lunar New Year break, contrasting with private survey data.
India’s BSE Sensex dropped over 1377 points on Wednesday, marking its lowest point since April 2025, amid ongoing losses for the fourth consecutive session due to rising tensions in the Middle East impacting market performance. Nifty 50 trades 455 points lower, below the 25,000 mark. The Indian rupee has fallen to approximately Rs 92 per dollar, its lowest ever, due to rising global oil prices and a strong US dollar.
South Korea’s KOSPI index fell more than 11% on Wednesday, leading to a temporary trading halt due to increased risk aversion related to the US- Israel war on Iran and escalating energy prices, prompting widespread profit-taking in local markets.
Where is the Money Flowing Into
With equities falling, where is the money flowing? “The US dollar is attracting renewed safe-haven flows. In periods of geopolitical escalation combined with inflation risk, capital gravitates toward dollar-denominated assets. We’re seeing increased demand for Treasury bills and high-quality fixed income as investors seek both yield and security, says Nigel.
The US dollar index, which measures the currency’s strength against a basket of six other currencies, has risen by 1.54% over the last five days. After dipping as low as 96, the index is just inches away from crossing the 100 threshold, which it last did in May 2025.
In DBS’ commentary on the Iran war, Taimur Baig and Hou Wey Fook say, “We expect the usual flight to safety to take place this week as investors flock to treasuries and gold. As the Iranian crisis continues, we see strong tailwinds for gold as investors seek to protect their portfolios from geopolitical headwinds.
We do not subscribe to the notion that silver can act as a substitute for gold as a portfolio risk diversifier for three reasons. Firstly, silver has a large proportion of its demand from industrial applications. Secondly, silver has a smaller market size compared to gold. Lastly, silver does not have as established a track record as a haven asset compared to gold.”
Gold rose back above $5,170 per ounce on Wednesday, recovering some losses from the previous session, while Silver gained more than 2% to trade above $84 per ounce on Wednesday after sliding for two straight sessions.