Geopolitics Drive Volatility as Oil Surges
Markets started the week under pressure as geopolitical tensions in the Middle East escalated sharply following renewed U.S. actions against Iran. President Donald Trump’s move toward a potential naval blockade—reportedly targeting Iranian ports rather than directly closing the Strait of Hormuz—triggered a strong reaction across global assets.
Energy markets led the move, with Brent crude surging over 7% to trade above $102/bbl, driven by fears of disruption in one of the world’s most critical oil supply routes. Shipping data showed multiple oil-laden tankers exiting the Strait of Hormuz, while Iran warned that “enemy-affiliated vessels” may not be allowed to pass, raising concerns over supply security.
Risk sentiment deteriorated across financial markets. Equities declined globally, with Asian indices down over 1% and U.S. futures pointing lower, as higher oil prices reignited inflation concerns and weighed on growth expectations. European markets were also set for a weaker open. At the same time, bond markets sold off, with Japan’s 10-year yield rising to its highest level since 1997, reflecting growing inflation pressures tied to energy costs.
The U.S. dollar strengthened broadly, supported by safe-haven demand, while commodities showed mixed performance. Despite geopolitical uncertainty, gold edged lower, as rising rate expectations reduced its appeal, and Bitcoin drifted toward $71,000.
Central banks are now back in focus as the inflation outlook becomes more uncertain. Money markets have repriced expectations for the ECB, now assigning a ~50% probability of a rate hike in April, up significantly from last week. Meanwhile, the Bank of Japan highlighted that rising oil prices could both lift inflation expectations and destabilize financial markets, complicating its policy outlook.
On the macro front, China’s growth outlook showed modest improvement, with forecasts pointing to Q1 GDP at 4.8% YoY, alongside slightly higher inflation expectations. However, any upside remains vulnerable to external shocks stemming from geopolitical developments.
Looking ahead, today’s U.S. PPI release will be at the center of attention, as markets assess whether upstream price pressures are accelerating further amid the surge in energy costs—potentially reinforcing expectations for tighter monetary policy.
Overall, while markets are reacting negatively in the short term, the relatively contained selloff suggests investors are not yet pricing in a full-scale disruption. That said, the Strait of Hormuz remains the key risk catalyst, and further escalation could amplify volatility across commodities, currencies, and global equities.
By Amir Amidian
Senior Market Analyst | Zylostar
