Synopsis: Global stock markets turned volatile after the Iran–US conflict heightened geopolitical risks and triggered concerns over energy supply disruptions. Major indices initially declined as investors shifted to safer assets, while oil prices surged. However, several markets later stabilised as investors reassessed the economic impact, and bargain buying supported a partial recovery.
One of the most impactful geopolitical events on global financial markets in recent times is the military conflict between the US and Iran. Wars and geopolitical events are known to cause volatility in financial markets immediately, especially when they are likely to affect the supply of energy, oil and other essential products. The military conflict between the US and Iran has already had an impact on the risk perception of global financial markets since it began on 28 February 2026.
The financial markets responded almost immediately, and the US equity futures plummeted as investors sought to minimise risks. The major stock markets, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq, experienced declines during early sessions.
Diverging Impact Across Global Markets
It has been observed that the impact of the Iran-US conflict has not been uniform across global markets. For instance, the impact of the Iran-US conflict has been higher in Asian and European markets compared to US markets because they import energy resources from the Middle East region. The South Korean KOSPI index has registered the sharpest decline in the world. In fact, the KOSPI index had plunged 18% since the conflict began. Similarly, the Nikkei 225 index in Japan had fallen 8% as the Iran-US conflict escalated.
European markets have also registered sharp declines. For instance, the DAX index in Germany had fallen more than 6%; similarly, the CAC 40 index in France had fallen 6%, and the FTSE 100 index in the UK had fallen 5% as investors shifted their investments to safer assets.
Performance of different sectors in the market has also registered sharp divergences. For instance, energy and defence stocks have registered sharp gains as oil prices have risen. At the same time, airline stocks have registered sharp declines as oil prices have risen.
However, several major indices bounced back as investors reassessed the broader economic impact of the conflict and sentiment improved. Notably, the KOSPI in South Korea, which had witnessed one of the steepest declines during the market panic, saw a strong rebound of around 8% and more in the latest session as buying interest returned. Other global indices also stabilised, reflecting improving risk appetite despite continued geopolitical uncertainty.
The table shows the country, its index, how much % Low it made since the war and what is the current % drop is since the war. Israel’s TA-125 Index was the only index to jump after the war.
Oil Shock and the Strait of Hormuz Effect
One of the key factors that have influenced the market reaction is the global energy market. The Strait of Hormuz is considered to be one of the most important oil routes in the world. About 20% of the world’s oil supply passes through the narrow Strait of Hormuz, located between Iran and Oman. Any threat to oil passing through this region will automatically raise concerns about oil supply being disrupted.
Brent crude oil prices have risen dramatically after the news of the Iran-US conflict was reported globally. Within a short time, the prices have risen by 20%. This was motivated by concerns over the geopolitical tensions, which are likely to affect global supplies. As a result, there was a geopolitical risk premium, which led to high volatility in the crude oil prices as investors and firms prepared for the effects of the conflict.
After the escalation of tensions in the region, oil prices have risen as investors have factored in the threat of oil supply being disrupted. Brent crude oil prices have risen substantially, with US crude oil registering considerable gains. Oil prices have a negative impact on the global stock market, as higher oil prices will lead to higher production costs for companies.
What History Suggests about Global Markets
In spite of the sharp short-term market volatility, history suggests that markets have a tendency to bounce back in the wake of a major geopolitical event. In fact, research on major geopolitical events in recent decades indicates that markets tend to fall temporarily before bouncing back as investors shift their attention to more positive factors, such as corporate earnings and technology innovation.
The key thing to note as an investor will be whether the situation can be contained or whether it will spill over to create a wider regional crisis that affects the global energy supply chains. In other words, if oil prices go up significantly and remain high, this could have an impact on inflation and therefore affect the markets, or whether the situation stabilises and the markets gradually bounce back as risk appetite improves.
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