War in Iran and Financial Markets: What to Expect?

While the offensive in Iran disrupts the geopolitical balance, history reminds us of the markets' resilience in the face of short-term shocks. Between OPEC adjustments and Swiss stability, here is an overview of the stakes involved in navigating this new landscape with perspective.

Until the last trading day of February—Friday the 27th—everything was fine. Markets were performing very well, particularly European and emerging equities, which were well ahead of US stocks. The latter are currently hampered by high valuations and doubts surrounding AI, affecting both the tech giants investing colossal sums and companies facing increased competition (software publishers are on the front line here).

Overall, corporate earnings and economic statistics were largely in line with expectations. The end of the month was also marked by new developments regarding tariffs, following President Donald Trump’s decision to impose new duties after the US Supreme Court overturned some of the tariffs applied in 2025.

A Major Geopolitical Shift and Its Economic Shockwaves

History took a completely different turn on Saturday, February 28, when American and Israeli forces launched a large-scale offensive against Iran (with Donald Trump once again bypassing the need for approval from both the US Congress and the UN).

The United States and Israel jointly launched operations "Epic Fury" and "Roaring Lion," which led to the death of the Iranian Supreme Leader, Ali Khamenei. The Iranian response has been strong, risking a regional escalation of a war whose duration no one can yet estimate. Since a long and costly conflict in terms of human life seems out of the question for the US, the Americans are banking on the support of the Iranian population to topple the regime. It is impossible to say whether this will be enough.

The economic consequences of this conflict could be significant:

• Energy Prices: Oil and gas prices have soared since Monday. 20% of global volumes usually pass through the Strait of Hormuz, partially controlled by Iran and currently virtually impassable. In this regard, Europe—a heavy importer—and China (which has remained notably silent lately) are more vulnerable than the US, explaining the sharper drop in European markets since Monday. We recall the impact of the Russia-Ukraine war starting in 2022 on energy prices and European growth. However, it should be noted that our previous dependency was stronger, and that conflict appeared infinitely more anxiety-inducing.

• Inflation: Due to rising commodity prices—not only oil and gas but also metals (and not just gold)—inflationary pressures are mounting. Financial markets are already pricing this in: interest rates have climbed significantly since the start of the conflict. If inflation were to accelerate again, central banks would find it impossible to cut rates and might even be forced to raise them.

• Political Fallout: The consequences for Donald Trump’s popularity (already in decline for several months) seem clear. This might lead him to de-escalate; otherwise, the upcoming midterm elections, which already look difficult for him, would be a lost cause.

However, a general conflagration, or even a localized one across the Middle East, remains unlikely. Iran’s allies lack the means—or perhaps the will—to support the disgraced regime. Gulf countries are already aligned with American interests and, by extension, those of Israel.

Furthermore, the rise in oil and gas prices might already be "priced in," especially since OPEC countries immediately increased production as early as Sunday. This decision was made with remarkable speed. A few conclusions can be drawn: first, OPEC countries expected this fatal outcome and had prepared for it. Second, one person's misfortune is another's gain, as this conflict allows them to increase revenues. Finally, there may be a parallel desire to cap energy costs to avoid breaking the global economic engine.