Rising Middle East Tensions Test Market Resilience and Economic Outlook

Global markets experienced a volatile week as rising tensions between the U.S., Israel, and Iran pushed oil prices sharply higher. Despite the uncertainty, stocks proved more resilient than many investors expected.

Heading into Friday, the S&P 500 was down less than 1%, even as oil prices surged more than 20% during the week. The relatively small decline suggests investors believe the conflict may not severely disrupt global economic activity or energy supplies.

David Solomon, CEO of Goldman Sachs, said markets are closely watching whether the conflict will affect global energy supply chains. Investors have been encouraged by efforts to keep oil flowing through the Strait of Hormuz, one of the world’s most important energy corridors.

However, risks remain. Continued attacks on regional energy infrastructure and instability in Iran could keep oil prices elevated for months. According to Goldman Sachs, if oil rises above $100 per barrel, U.S. inflation could increase by about 0.6 percentage points while economic growth could slow slightly.

Nobel Prize–winning economist Paul Krugman warned that while higher oil prices alone may not trigger a recession, combined with existing pressures such as tariffs and financial stress, the conflict could become a serious economic shock if it drags on.