Six Months of Conflict: How the Iran war has reshaped global markets

Six months after U.S. and Israeli strikes on Iran triggered a conflict that disrupted energy supplies, global financial markets have absorbed the shock unevenly. Oil and refined fuel prices have climbed, Gulf economies have suffered, while global equities have remained resilient, helped by the powerful rally in artificial intelligence-related stocks.

According to Reuters, the conflict has also complicated the traditional role of safe-haven assets such as U.S. Treasuries, gold and the dollar, while disruptions to fertiliser shipments are raising concerns about a renewed wave of global food inflation.

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Oil and fuel costs surge

Energy markets have borne one of the most immediate consequences of the conflict. Disruptions to Gulf production and reduced shipments through the Strait of Hormuz pushed Brent crude briefly above $120 a barrel in April. Prices have since eased but remain significantly above last year's levels, with Brent averaging around $90 a barrel in 2026 compared with roughly $70 in 2025, Reuters reported.

Refined fuels have experienced an even sharper impact. Diesel prices have risen amid shortages of middle distillates, disruptions at Russian refineries caused by Ukrainian attacks and reduced Gulf exports.

Jet fuel supplies were also initially affected because of the Gulf's importance to global aviation fuel markets. However, increased U.S. refinery production and exports have helped ease some of the pressure.

The energy outlook could remain challenging as the northern hemisphere heads into winter. Further disruptions to shipments through Hormuz, combined with risks to Russia's energy infrastructure, could push heating-oil prices higher and add to inflationary pressures.

AI boom cushions global equities

Despite the geopolitical shock, global stock markets have remained remarkably resilient. Reuters reported that the surge in investment linked to artificial intelligence has helped offset concerns stemming from the conflict.

The MSCI world equity index, covering 47 countries, reached a record valuation of about $105 trillion this month. It has gained almost $7 trillion, or around 9%, since the conflict began.

The performance has been far less impressive in the Gulf, where markets have faced direct exposure to the disruption. Outside the region, however, investors have largely continued to favour equities, supported by expectations for strong corporate earnings and continued investment in AI.

The resilience of global equities suggests that investors have so far viewed the conflict as a manageable shock rather than a development capable of derailing the broader economic expansion.

Traditional safe havens lose their shine

The conflict has also challenged conventional assumptions about where investors seek protection during periods of geopolitical stress.

The U.S. dollar has gained about 1.4% against a basket of major currencies since the conflict began, although Reuters noted that much of the move has reflected weakness in the Japanese yen.

U.S. Treasuries, traditionally regarded as one of the world's most important safe-haven assets, have instead generated negative returns. Ten-year and other government bond holdings have been pressured by concerns over inflation and reduced expectations for Federal Reserve interest-rate cuts.

Questions surrounding new Federal Reserve Chair Kevin Warsh and Washington's debt-management plans have added further uncertainty to the Treasury market.

Gold has also followed an unusual path. The precious metal fell almost 25% between the beginning of the conflict and July, despite having more than tripled since 2022, when Western countries froze Russian central bank reserves following Moscow's invasion of Ukraine.

Gold has since rebounded sharply, gaining more than 15% this month as concerns about the long-term value of the U.S. dollar have returned to the forefront.

Fertiliser disruption raises food inflation risks

The conflict's effects are extending beyond energy markets. The disruption to shipping through the Strait of Hormuz has affected fertiliser supplies, creating another potential threat to global agricultural production.

Reuters reported that the fertiliser disruption is occurring alongside the effects of a strong El Niño and further interruptions to grain shipments associated with the war in Ukraine.

Global food prices increased in July to their highest level in more than three years, according to the U.N. Food and Agriculture Organization.

The full impact of current supply disruptions may not yet have reached consumers. The FAO has warned of the possibility of another period of food inflation, while JPMorgan estimates that a strong El Niño could, at its peak, increase global food inflation by around 0.7%.

The consequences could be particularly severe in Asia, Latin America and Africa, where food represents a larger share of household spending and governments remain sensitive to renewed inflationary pressures.

Gulf economies take the biggest hit

The Gulf region has suffered the most direct economic consequences from the conflict.

Saudi Arabia's exports fell 10% between the first and second quarters. Reuters also reported that JPMorgan estimates property sales in Dubai have plunged between 70% and 80%.

Qatar faces particularly significant risks because of damage to its Ras Laffan gas facility. Oxford Economics estimates that Qatar's economy could contract by almost 30% this year as a result of the disruption.

Stock markets across the region have also underperformed global equities. Qatar and the United Arab Emirates have each declined by around 14%, representing an underperformance of more than 20 percentage points compared with world stocks, Reuters reported.

The cost of insuring Gulf sovereign debt against default has increased as investors have reassessed regional risks. Bahrain has faced the sharpest deterioration, with its credit-default swap prices rising by almost 40%.

Markets face a more uncertain second half

Six months into the conflict, the global economic impact remains uneven. Strong AI investment and resilient equity markets have helped cushion the broader financial system, while energy markets, Gulf economies and agricultural supply chains have absorbed much of the immediate damage.

The next phase could depend heavily on the duration of the conflict, the stability of energy shipments through the Strait of Hormuz and the extent to which higher fuel and food costs feed into inflation.

For investors, the episode has demonstrated that geopolitical shocks do not necessarily produce a uniform flight to traditional safe-haven assets. Instead, the conflict has created divergent outcomes across equities, commodities, currencies, bonds and regional markets, with the possibility of further volatility if energy and food supply disruptions intensify.