How Six Months of Middle East Conflict Impacted Financial Markets – Global Banking & Finance Review

Six Months of Continued Tension: How the Middle East Conflict Reshaped Global Markets

Middle East Conflict: Six Months of Global Financial Market Impact

By Karin Strohecker and Marc Jones

LONDON, Aug 27 (Reuters) – Friday marks six months since the U.S. and Israeli bombing of Iran triggered a conflict that has disrupted global energy supplies and sent ripples through global financial markets.

The charts below illustrate how the conflict has influenced oil, equities, safe‑haven assets and food prices.

Global Financial Market Repercussions

Costly Energy

Oil Price Surge

Oil prices surged as Gulf production faced disruptions and shipments through the Strait of Hormuz were curtailed. Brent crude briefly peaked above $120 in April and remains near $90 in 2026, up from approximately $70 the previous year.

Refined Fuels and Diesel Impact

The most pronounced effects are seen in refined fuels. Diesel prices increased sharply due to mid‑distillate shortages, Russian refinery shutdowns sparked by Ukrainian strikes, and disrupted Gulf exports.

Jet Fuel and Heating Oil Risks

Jet fuel suffered an initial sharp decline because of the Gulf’s critical role; however, heightened U.S. refinery capacity and exports later alleviated supply anxieties.

As the northern hemisphere approaches winter, potential delays to Hormuz shipping combined with vulnerabilities in Russia’s energy infrastructure could elevate heating‑oil costs and intensify inflationary pressure.

AI Boom Cushions Stocks

Stock Market Performance

Global equity markets have generally absorbed the tension, propelled by tens of trillions of dollars flowing into artificial intelligence ventures.

MSCI’s 47‑country world stocks index reached a $105 trillion high this month, up nearly $7 trillion or 9% since the outbreak—while West Coast Gulf‑region equities lagged behind.

Investor Sentiment

Fidelity analyst Pranav Aggarwal noted that the broad rally indicates investors maintain a “relaxed stance” and still anticipate the conflict ending early this year.

“Equities are actually delivering a solid year,” he observed. “The index is up roughly 14% as of August—a beat above the typical 8‑9% annual gain.”

Searching for Safety

Safe‑Haven Asset Performance

Traditional refugee assets—such as highly rated sovereign bonds, gold, and the U.S. dollar—have failed to assume their customary protective roles during these episodes.

The Dollar

The dollar edged up 1.4% against a basket of major currencies since the war began, though much of this movement reflects the weakness of the Japanese yen, analysts explained.

U.S. Treasuries

U.S. Treasury securities have slipped 3.5% on total return terms as rising inflation invalidates expectations of future rate cuts and uncertainty over the appointment of new Federal Reserve chair Kevin Warsh and subsequent debt‑buyback initiatives weigh on demand.

Gold

Gold declined nearly 25% between the war’s inception and July—it had more than tripled in value since 2022 after Western sanctions frozen Russia’s central bank reserves following the Ukraine invasion. Yet gold climbed more than 15% in the past month as renewed worries about dollar debasement resurface.

Food and Fertilisers

Fertiliser Shipments and Food Production

The closure of the Strait of Hormuz hindered fertiliser deliveries, a vital input for worldwide crop growth.

Amid stronger El Niño conditions and additional grain bottlenecks linked to the conflict in Ukraine, analysts predict accelerating threats to agricultural yields.

Rising Food Prices

World food prices reached a three‑year high in July, according to the UN Food and Agriculture Organization. Experts caution that much of this pressure remains unfelt currently.

FAO warnings suggest the planet may slide toward another wave of food‑inflation spikes, with JPMorgan estimating a severe El Niño scenario could push global food inflation up by roughly 0.7% at its peak.

Regional Impact

The fallout is anticipated to be most acute in Asia, Latin America and Africa, where consumers allocate larger portions of disposable income to basics and policymakers remain wary of price shocks.

Gulf Clubbed

Economic and Market Fallout in the Gulf

The direct impact on Gulf economies has been severe. Saudi Arabian exports contracted by 10% between the first and second quarters. JPMorgan projects Dubai property transactions collapsed by 70‑80%, and Oxford Economics forecasts Qatar’s GDP shrinking nearly 30% this calendar year due to damage to its Ras Laffan gas complex.

Stock and Debt Market Influence

Shares of Qatar and the UAE slipped roughly 14%—a shortfall of more than 20 percentage points alongside global equities. Insuring costs for potential defaults on both nations’ debts have risen, with the heaviest indebted member, Bahrain, seeing credit default‑swap prices jump almost 40%.

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