[International Financial Briefing] Escalation of US-Iran Conflict Sparks Tension in Global Financial Markets… Strait of Hormuz Blockade and Oil Price Surge Risks Emerge

The ongoing military conflict between Iran and the U.S. has heightened tensions in global financial markets. While the market hopes for an early end to the war, it remains cautious about the potential blockade of the Strait of Hormuz, leading to increased volatility amid uncertainty.

As of March 10, the U.S. stock market showed a downward trend. The S&P 500 index fell 0.21% compared to the previous day. European markets, however, rose due to expectations of easing inflation from falling oil prices, with the STOXX 600 up 1.88%. The U.S. dollar index declined 0.25%, and the 10-year U.S. Treasury yield increased by 6 basis points.

U.S. “War Ends When Goals Are Achieved”… Iran Responds Firmly

The White House stated that if the objectives of military actions against Iran are fully achieved and Iran is effectively in unconditional surrender, the war can be ended. This has been interpreted by the market as a signal that, even without an official surrender declaration from Iran, the war could be over. President Trump also mentioned the possibility of dialogue with Iran but emphasized the importance of conditions.

The U.S. Department of Defense is currently conducting airstrikes aimed at destroying Iran’s missile manufacturing capabilities. The Defense Secretary said these recent strikes will be the most intense level of the operation. However, some staff have unofficially suggested the need to develop a strategic plan for exiting the war.

Tensions in the Strait of Hormuz… Oil Prices May Surge

Energy markets are also experiencing significant turbulence. The International Energy Agency convened an emergency meeting to discuss whether to release strategic petroleum reserves, and G7 energy ministers discussed measures to stabilize oil prices. However, no concrete agreement on releasing strategic reserves has been reached so far.

Iran maintains a hardline stance. The Iranian Parliament Speaker stated they do not want a ceasefire, and the Revolutionary Guards emphasized that ending the war or not should be decided by Iran. Iran also issued a warning that it will not allow oil exports from the Gulf region, reaffirming its intention to blockade the Strait of Hormuz.

This incident is estimated to impact oil production along the Gulf coast by about 6.7 million barrels per day, roughly 6% of global oil supply. Some analysts predict that, depending on developments, international oil prices could rise to $134–$150 per barrel.

Oil Price Shock Shakes Rate Expectations

The rise in oil prices caused by Middle East tensions is also affecting the outlook for major central banks’ monetary policies. Investors are adjusting their expectations, with some reducing their forecasts for rate cuts due to concerns about rising inflation pressures. Market sentiment now suggests that the Federal Reserve may cut rates only once or twice this year, down from previous expectations of 2–3 cuts.

In the UK, rate cut expectations are also weakening, with some discussions even considering the possibility of rate hikes. European Central Bank officials have stated that, despite the war situation, rate adjustments should remain cautious, and the impact of energy price shocks on the economy needs to be confirmed first.

Complex Impact of Global Economic Variables

Experts believe that the financial markets are now facing multiple overlapping risks. These include energy shocks from the Middle East conflict, structural changes driven by the expansion of the AI industry, risks from non-bank-led credit markets, and the potential slowdown in U.S. employment, all exerting combined pressure on the markets.

China’s economy appears relatively resilient. In January–February, exports grew 21.8% year-over-year, significantly exceeding expectations. Although exports to the U.S. declined, exports to Southeast Asia and Europe increased substantially. The Governor of the People’s Bank of China stated that they will not devalue the renminbi to enhance trade competitiveness.

The Bank of Japan is also expected to maintain its current policy stance. An BOJ board member emphasized that gradually reducing government bond purchases as planned remains appropriate, and implementing policies in a predictable manner is important.

Long-term War Risks and Global Economic Impact

Market concerns are mounting that if the conflict prolongs, not only will energy markets remain volatile, but the overall global economy could also be affected more broadly. Rising energy prices may stimulate inflation and constrain monetary policy options for many countries.

Some analysts argue that the U.S. government needs to propose a clearer and more realistic strategy for ending the war. Currently, the objectives and plans for a final resolution are unclear, and uncertainty in financial markets is likely to persist.

Source - International Financial Center Report