Financial markets opened the week under strain as the war in and around Iran continued, stoking concerns of an extended energy price shock across importing nations. Futures tied to the main U.S. equity benchmarks slipped while oil climbed and the dollar strengthened. At the center of the latest developments, U.S. President Donald Trump set a deadline for Iran to reopen the Strait of Hormuz, a key shipping chokepoint, with Tehran publicly refusing to comply. The International Energy Agency (IEA) warned the crisis was "very severe" and discussed the possibility of coordinated releases from strategic stockpiles to ease supply disruptions.
Market snapshot
By 04:04 ET (08:04 GMT) on Monday, futures tied to U.S. stock indexes showed notable declines. The Dow futures contract was lower by 305 points, or 0.7%. S&P 500 futures were down 55 points, or 0.8%, and Nasdaq 100 futures had fallen by 227 points, or 0.9%. These moves reflected deepening investor concern as the conflict stretched into its fourth week.
Global equity gauges were under pressure as well, particularly in regions that import substantial amounts of energy from the Persian Gulf. Asian markets felt renewed strain, and European shares were weaker too - the Stoxx 600, a broad pan-European index in a region that depends on energy exports from the Gulf, also slipped.
The main U.S. averages had already eased on the prior Friday, with investor attention drawn to the risk that a prolonged U.S.-Israeli campaign against Iran could intensify an emerging energy shock. Brent crude - the global oil benchmark - ended last week just above $112 a barrel, a large premium to the roughly $70-a-barrel level seen before the conflict began in late February. That surge in oil has fed through to consumer fuel costs, with gasoline prices in the U.S. rising about 32% to $3.94 a gallon since the start of the hostilities, according to reporting that cited data from the AAA motor club. Diesel prices have also climbed, adding to upward pressure on headline inflation measures and drawing the attention of central bank policymakers.
Against that backdrop, the Federal Reserve left its policy rate unchanged at a range of 3.5% to 3.75% at its recent meeting. However, market-implied odds of later rate cuts diminished as investors weighed the inflationary implications of higher energy costs. Some wagers even emerged that the energy price spike could force the central bank to consider further tightening.
1. Futures dip as conflict prolongs
Traders tracked a stream of developments linked to the Middle East conflict, with the ongoing campaign and disruption to shipping routes a central focus. The rout in futures reflected the perception that the longer the fighting persists, the greater the probability of a sustained upside shock to energy prices.
Brent crude futures for May were trading higher on Monday, last ticked up 1.7% to $114.07 a barrel. Analysts and market participants highlighted that only a full resumption of traffic through the Strait of Hormuz would likely restore stability to oil markets.
2. U.S. ultimatum and Iran's response
President Trump set a firm deadline, warning that Iran's power plants would be targeted if Tehran did not reopen the Strait of Hormuz by Monday night. Roughly one-fifth of the world's oil passes through the strait, which has effectively been closed to tanker traffic amid fears that Iran could attack vessels it deems "enemy-linked."
Iran rejected the demand, saying the strait would remain "completely closed" in response to any strikes on its energy infrastructure. The messaging from Washington has contained mixed signals: while Mr. Trump said the United States would "obliterate" certain facilities in Iran, he has also suggested the military campaign was nearing a "winding down," and media accounts indicated the White House was beginning to consider what a ceasefire arrangement with Tehran might involve.
Despite continued strikes on Tehran and comments from Israel that fighting against Iran-backed militants in Lebanon has only just begun, some analysts noted that Mr. Trump appears to be exploring an exit path amid domestic resistance to the conflict and escalating economic consequences. Those dynamics could shape how the campaign unfolds in coming days.
3. IEA calls the situation "very severe"
Fatih Birol, the IEA's executive director, described the Middle East crisis as "very severe," saying the shock to oil markets could exceed earlier disruptions. Speaking at an event in Australia, Birol said the IEA was consulting with governments across Europe and Asia about potentially making additional strategic oil stocks available to mitigate supply constraints caused by the blockade of the Strait of Hormuz.
"If it is necessary, of course, we will do it. We look at the conditions, we will analyze, assess the markets and discuss with our member countries," Birol said. Earlier in the month, IEA member states had agreed to release a record 400 million barrels from strategic reserves, equal to about 20% of total stocks.
Nonetheless, Birol and other officials emphasized that such releases are a stopgap measure and that a full reopening of shipping lanes through the strait is the only sure way to normalize supplies and stabilize markets.
4. Dollar strengthens amid flight to safety
Investors moved toward the U.S. dollar as a perceived safe haven while geopolitical risk rose. By 04:40 ET (08:40 GMT), the U.S. dollar index - which measures the greenback against a basket of currencies - had edged up 0.1% to 99.75. Over the prior month the index had climbed by over 2%, though it registered its first weekly decline since the start of the conflict on the previous Friday.
Risk-sensitive currencies weakened. The Australian dollar, often used as a barometer for global risk appetite, lost ground. The Japanese yen also slid, prompting Japan's top currency official to signal the government's readiness to act to counter foreign-exchange volatility.
Analysts at ING noted that "risk sentiment is deteriorating at the start of this week as the U.S. and Iran appear far from peace discussions."
5. Gold retreats as rate and inflation fears weigh
Precious metals came under pressure, with gold falling sharply on Monday. Market participants attributed the weakness to a combination of reduced safe-haven buying for bullion and growing concerns that higher energy prices could sustain elevated inflation, in turn leading central banks to keep policy rates higher for longer. The recent losses left gold largely erasing its gains for the year.
Analysts at OCBC said the market is "trading less on geopolitical hedging flows and more on fears that stickier inflation could prompt a more hawkish central bank stance." ING analysts also observed that the current environment "heavily favors" the dollar, further weighing on non-yielding assets such as gold.
Implications and sectors to watch
The conflict's impact has rippled through energy, transportation and broader inflation-sensitive sectors. Rising crude and fuel costs directly affect oil-exporting and -importing economies, feed into transportation and logistics expenses, and can put upward pressure on headline inflation measures that are closely watched by central banks. Financial markets, including equities and foreign exchange, have been sensitive to readings on these developments over the past week.
While policymakers have so far held policy rates unchanged, the prospect of sustained higher energy prices has started to alter market expectations around the timing and direction of future monetary easing or tightening.
What remains uncertain
Key unknowns include how long the Strait of Hormuz will remain effectively closed to normal tanker traffic, the depth and duration of coordinated releases from strategic reserves, and whether military and diplomatic signals will converge toward de-escalation. Each of these factors will determine whether markets see a gradual easing of pressure or continued volatility and price spikes.
For now, investors and policymakers appear to be balancing the near-term market disruptions against longer-term macro considerations, with oil, currencies and precious metals at the forefront of the reaction.
This report synthesizes developments through early Monday trading hours and comments from international energy officials and market participants.