The market's 3 biggest questions about the Iran conflict

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The market's 3 biggest questions about the Iran conflict.

stock :: 11hrs ago :: source - yahoo finance

By Hamza Shaban

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In the span of two months, the US government has toppled two foreign leaders, ushered on by a president who made a selling point of abandoning American-style nation-building and military adventurism.

After the incursion in Venezuela, President Trump turned his sights on Iran.

This time, Iran's retaliation has changed the calculus, putting the situation in uncharted territory — something investors do appear to be acutely aware of. Markets provided an initial response to the war in Iran, with the impact on oil prices and inflation-related trades at the forefront.

The Middle East conflict is widening just as investors are fretting about AI's economic impact. Trading for February closed in the red, punctuating a volatile period of uncertainty and second-guessing.

A multicountry shooting war is as serious as it gets for geopolitical risk. But the stock market's initial response was telling on Monday, opening in the red before waving off concerns and closing in the green.

The president said US attacks in Iran could last another month or more. Meanwhile, investors are merely adding "Iran" to a growing list of narratives and catalysts to monitor, along with trade policy following the Supreme Court decision and the myriad AI threads.

But global conflict has its own set of winners and losers. And as investors look to what's next for the operation in Iran, the economic effects are beginning to reverberate.

Here are the three biggest questions about the Iran conflict.

What are markets signaling will happen?

An array of price indicators flashed warnings that sustained disruptions lie ahead. Oil prices jumped Monday, with Brent crude futures (BZ=F) surging as much as 13% to top $82 a barrel but moderating gains to slip below $78. West Texas Intermediate futures (CL=F) traded just below $71. The surge marked the highest jump in four years but appears to have stabilized.

Iran is the Organization of the Petroleum Exporting Countries' (OPEC) fourth-largest producer, and as the conflict blocks shipping lanes in the Strait of Hormuz and tanker traffic halts, concerns about inflation are rushing in.

Treasury yields are on the rise as traders contemplate the risk that the conflict reignites pricing pressures and forces the Federal Reserve to hold off on potential rate cuts. Chances of a Fed cut in the next four meetings have fallen compared to before the start of the US and Israeli attacks.

Former Treasury Secretary Janet Yellen said Monday that depending on how long the conflict weighs on the oil market, the Fed's job will be complicated by a hit to US economic growth and an increase in inflationary pressures.

Who are the winners and losers?

Stock in energy giant Exxon (XOM) climbed on Monday, reflecting the heightened value of oil. Defense stocks were another clear winner, as the potential for a prolonged conflict boosted the prospects of the US government's weapons and logistics suppliers. Shares of Lockheed Martin (LMT) rose more than 2%.

In a testament to a string of chaotic global events, gold (GC=F) continued its historic rally and burnished its reputation as an asset to rush to when trouble unravels. The precious metal rose close to 2%, briefly crossing $5,400 an ounce. JPMorgan analysts said they expect a "risk premium" jump in gold prices in the near term of more than 5% to 10% in the aftermath of US-Israeli strikes.

But names on the flipside of the Iran war trade were just as apparent. Travel-linked stocks slipped, with Delta Air Lines (DAL) and United Airlines (UAL) dropping more than 2%. Some of the world's busiest airports were clogged this weekend as the conflict jammed up operations and passengers in the Middle East scrambled to escape reprisal attacks from Iran.

Some European airlines with hubs in the Persian Gulf halted flights in the region and rerouted aircraft to avoid airspace near the attacks.

Add homebuyers to the economic losers list. Mortgage rates jumped on Monday in concert with the rise in Treasury yields amid fresh concerns about inflation.

But in an emerging situation, all of this could not be more provisional. The scale of consequences will likely follow the conflict's duration, as well as any actual direct or second-order impact — that's why Wall Street's default has been to hand-wave most geopolitical flare-ups over the past few years.

What can happen next to the oil and gas markets?

Gasoline prices rose to just under $3 on Monday as oil prices surged. With shipping activity stalled at the critical chokepoint for the world's oil flows, prices could continue to rise, placing Trump's economic pledge of lowering gas prices at odds with his foreign policy.

Drivers can expect to see steeper increases as the disruptions filter through to retail gas stations, and quickly, Patrick De Haan, head of petroleum analysis for GasBuddy, told Yahoo Finance.

De Haan predicts prices could increase by $0.10 to $0.30 per gallon this week. Adding to the upward pressure, much of the country has already begun switching to cleaner, more expensive gasoline for the start of the spring driving season.

"The seasonality, along with the attacks on Iran, is surely going to lead most motorists to see higher gas prices here, not just over the next few days but really the next several weeks, if not two or three months," De Haan said.

The flow of natural gas is also under threat. Goldman Sachs estimates that European prices could more than double if the Straight of Hormuz remains blocked for a month, echoing the price shocks seen during Russia's invasion of Ukraine.

And once again, the overall impact keeps coming back to the biggest question on everybody's mind: How long will this last?

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.