Overview
A single all-caps post on Truth Social claiming "very good and productive" talks with Iran was enough to flip markets that had been moving in the opposite direction. The post - announcing an extension of a previously stated 48-hour deadline to a five-day reprieve for Iran to reopen the Strait of Hormuz - pushed oil sharply lower, bolstered global equities and unmoored several other asset classes, even as much of the early movement proved temporary.
That episode underscored how a few words from the U.S. president can reorder risk assessments across trillions of dollars of financial assets. Traders who positioned ahead of or immediately after the message captured outsized outcomes. But in the days that followed, mixed communications from Washington and Tehran, and divergent market reactions, demonstrated how fragile consensus can be in the face of geopolitical uncertainty.
Immediate market responses
After the initial social media message, oil prices plunged by more than 10% while global equities rallied, the dollar weakened, yields fell and gold rose. Yet these moves were not universally sustained. On a later trading day, the tech-heavy Nasdaq fell about 2% and officially entered correction territory, while Brent crude rose nearly 6% to above $108 a barrel, illustrating the rapid reversal in investor sentiment when new developments arrived.
In the subsequent hours the president again extended his timeline for attacking Iranian energy infrastructure - this time to April 6 (8 PM EDT) - while saying talks with Tehran were progressing "very well." That announcement trimmed some stock losses but did little to move crude substantially lower, and as of early Friday Brent had inched past $109 per barrel while S&P futures moved back into negative territory. Asian markets, particularly those most exposed to potential energy supply disruptions, continued to feel the strain - South Korea's KOPSI fell nearly 4% on Friday.
Mixed signals, mixed pricing
The shrinking "power of the post" appears to reflect contradictory information emanating from multiple parties. While the U.S. president said Iran requested a seven-day reprieve, mediators cited by the Wall Street Journal denied that such a request had been made. Tehran has reportedly rejected a 15-point proposal aimed at ending the conflict. Separately, the WSJ also reported the U.S. is contemplating sending an additional 10,000 troops to the Gulf. Those conflicting reports leave markets with scenarios that range from dramatic escalation to a deal in a matter of weeks - a wide spectrum that is difficult to price.
Investors have already shown they can respond in counterintuitive ways during this crisis. Both U.S. Treasuries and gold have softened since the initial outbreak of hostilities on February 28. The weakening in Treasuries aligns with inflation concerns, expectations for a hawkish shift at the Federal Reserve and a run of underwhelming debt auctions that hint at broader vulnerability in the roughly $30 trillion Treasury market. The decline in gold - often viewed as the canonical safe haven - has surprised some market participants and suggests the traditional safe-haven playbook may be under pressure.
Private credit stress and other market strains
Beyond public markets, risks have emerged within private credit. Redemption pressures prompted managers to limit withdrawals: Ares Management and Apollo Global Management recently capped investor redemptions from private credit vehicles after a spike in requests. Had the war not occupied headlines, stress in private credit might have been the dominant market story.
Against this backdrop, some investors have considered whether U.S. equities remain the fallback. Despite geopolitical turmoil and the specter of technological disruption and rising artificial intelligence spending concerns, a number of large banks have upgraded S&P 500 forecasts in anticipation of robust earnings growth. The bull case for U.S. equities is noted by some market participants as more persuasive than might be expected amid the uncertainty.
Energy markets and the Strait of Hormuz
The oil futures curve still reflects optimism relative to the scale of supply disruption, which market participants estimate could be as large as 20 million barrels a day and involves significant damage to energy infrastructure. That pricing implies an expectation of a relatively quick resolution and the full reopening of the Strait of Hormuz. Paradoxically, by assuming a fast conclusion, markets may be underestimating the risk that the waterway remains largely closed for an extended period.
The president may have weighed a decision to strike Iran on the assumption that the United States' domestic oil resources would insulate the economy from a serious energy shock. Nevertheless, U.S. gasoline prices have been edging toward $4 per gallon, a trend that undercuts that thesis and is contributing to consumer dissatisfaction. A recent Reuters/Ipsos poll found only 29% of respondents approve of the president's handling of the U.S. economy - the lowest approval on this question for the president.
Regional implications and the energy transition
Natural gas markets may face more acute disruption than crude because of their comparatively inflexible supply chains, restricted storage capacity and infrastructure that can be harder to repair quickly. Europe, with heavy gas dependence, may be forced to reconsider or slow parts of its climate agenda if gas supply is curtailed. In contrast, the crisis could accelerate the energy transition in parts of Asia, boosting adoption of electric vehicles - a potential tailwind for China, a major EV producer.
Diplomatic calendar moves also carry market implications. The U.S. president postponed a planned trip to Beijing with President Xi Jinping, rescheduling for mid-May. The decision to defer suggests an expectation in Washington that the current hostilities will be substantially resolved within roughly six weeks, though for investors and stakeholders the period feels long and uncertain.
Further reading, listening and viewing curated by ROI contributors
For market participants seeking additional, data-driven perspectives, Reuters' Open Interest provides focused analysis on several topics related to the conflict's market effects. The items highlighted include:
- Which hard-to-source metal is being destroyed with each U.S. missile strike?
- Which companies may benefit from post-Iran war reconstruction?
- Why European defense stocks declined shortly after the Iran war began?
- Whether the petrodollar could be succeeded by a petroyuan arrangement?
ROI team recommendations for further reading and listening this weekend include work from contributors across markets and energy:
- Mike Dolan flagged a New York Fed paper modeling global r* that suggests it has risen about one percentage point since the pandemic but remains below pre-1990 levels.
- Gavin Maguire recommended a Reuters examination of the appeal of Chinese electric vehicles to U.S. consumers, and the tensions that creates between industrial policy and consumer demand.
- Jamie McGeever highlighted a Project Syndicate op-ed questioning the shift from a stated preference for non-intervention in a U.S. National Security Strategy to the current path toward conflict.
- Clyde Russell pointed to a Lloyd's List analysis of Iran's newly imposed toll system in the Strait of Hormuz, assessing shipping risks and rewards beyond headline coverage.
On audio, Andy Home joined Adrian Pocobelli on The Northern Miner podcast to discuss how Strait of Hormuz disruptions exacerbate fractures in metals markets, with particular attention to aluminium and tungsten supply chains. Tungsten was noted for its role as an input in missiles and munitions currently in use across the Middle East.
For broader macro discussion, Jamie McGeever recommended a conversation featuring Paul Krugman and Robin Brooks on topics including Iran, oil and the dollar.
What to watch next
Market participants will continue to parse statements from Washington and Tehran, reports from mediators, and developments on the ground in the Gulf. Key variables include confirmation or contradiction of claims that Iran requested a seven-day reprieve, Tehran's response to any proposals put forward, and any decision by the U.S. to deploy additional troops to the region. The pace and clarity of these developments will determine whether recent moves in oil, equities, Treasuries, gold and private credit persist or reverse.
Investors face a challenge: price a world that could either move quickly toward de-escalation and reopened shipping lanes or escalate into prolonged disruptions to global energy flows. Given the wide range of potential outcomes and the current state of contradictory signals, the task of translating geopolitical events into reliable valuations remains fraught.
Weekend note: Morning Bid Weekend will be off next Friday for the long holiday weekend. Best wishes to those observing upcoming holidays.