Markets Tumble as Trump Signals Prolonged Iran Conflict, Raising Fears Over Oil Supply and Inflation

BY COMFORT OGBONNA

Global financial markets retreated on Thursday after U.S. President Donald Trump warned that military operations against Iran would continue for several more weeks, escalating concerns about a prolonged conflict that could disrupt oil supplies and push inflation higher worldwide.

Trump’s remarks, including a warning that Iran could be “bombed back to the Stone Age,” significantly raised the stakes in a war that has now entered its fifth week. The comments dampened investor hopes that the conflict in the Middle East would end quickly and instead signaled that military operations could intensify in the coming weeks.

Financial markets reacted swiftly to the uncertainty. Global stocks and bonds declined while oil prices surged and the U.S. dollar strengthened, reflecting a shift toward safer assets as investors braced for an extended geopolitical crisis.

Trump said the U.S. military had nearly achieved its key objectives in Iran but stopped short of providing a clear timeline for ending the campaign. Instead, he indicated that American forces would continue striking targets in Iran for the next two to three weeks.

The lack of a concrete plan for winding down the conflict unsettled investors who had hoped the war might soon ease. Market participants said the comments reinforced fears that the conflict could drag on longer than expected.

Mike Houlahan, director of Electus Financial Ltd in Auckland, said the speech provided little reassurance to investors.

“I don’t think there was much in the speech apart from confirmation that the bombing will continue for the next two to three weeks,” Houlahan said. “That effectively pushes the timeline for any resolution further out.”

He added that the extended military campaign could create additional strain on global energy supplies.

“The next question investors are asking is whether extending the conflict by several weeks will place even more pressure on the fuel supply chain,” he said.

Earlier in the week, investors had briefly grown optimistic after comments from Trump appeared to suggest that a resolution might be closer than expected. That optimism had lifted global equities and pushed the U.S. dollar off recent highs. However, Thursday’s speech reversed that sentiment, underscoring the possibility of a long and uncertain war.

As a result, traders who had recently increased their exposure to riskier assets quickly began reducing their positions, especially ahead of a long holiday weekend when market volatility can increase.

One of the biggest concerns for investors remains the impact of the conflict on global oil supplies and inflation. Markets are particularly focused on the status of the Strait of Hormuz, a critical shipping route through which a large share of the world’s oil passes.

Iran’s control over the strategic waterway has raised fears that shipping disruptions could lead to a severe global energy shock. Oil prices surged following Trump’s comments, with the benchmark Brent crude contract for June jumping roughly 5% to about $106 per barrel.

Matt Simpson, senior market analyst at StoneX in Brisbane, said markets were increasingly worried about prolonged disruptions to energy flows.

“With no clear plan to reopen the Strait of Hormuz, which Iran has effectively shut down, oil prices are likely to remain elevated for an extended period,” Simpson said. “That means markets will soon have to contend with another wave of inflation.”

The prospect of sustained high energy prices has also revived fears of stagflation—a challenging economic scenario marked by high inflation and slow economic growth. Such conditions can be difficult for central banks to manage because policies designed to curb inflation can further slow economic activity.

Policymakers have already begun warning about the risks. Toichiro Asada said Japan could face stagflation pressures stemming from the Iran conflict, a situation that would be particularly difficult to address through traditional monetary policy tools.

“The key question on investors’ minds is when this conflict will end,” said Russel Chesler. “That uncertainty is what’s driving the volatility we’re seeing across markets.”

Chesler noted that the combination of slower economic growth and rising inflation expectations is creating conditions that resemble stagflation, an environment that unsettles both investors and policymakers.

Bond markets also reflected these concerns. Yields on U.S. government debt rose in Asian trading on Thursday as investors adjusted expectations for inflation and interest rates. The yield on benchmark 10-year Treasury notes climbed to about 4.38%, signaling concerns that higher inflation could delay or even prevent interest rate cuts.

Despite the market turbulence, analysts expect volatility to persist in the coming weeks as investors closely monitor developments in the Middle East conflict.

The U.S. dollar, which has benefited from increased demand for safe-haven assets since the conflict escalated in late February, strengthened against major global currencies after Trump’s speech, reversing two days of declines.

Carol Kong said the dollar could continue rising if the conflict drags on.

“The dollar has already edged slightly higher, and if the war continues at least through June as we expect, the currency could strengthen even further,” said Kong of Commonwealth Bank of Australia.

She added that optimism about a quick end to the war remains limited because the outcome ultimately depends on the actions of both Israel and Iran.

“It’s difficult to feel confident about the conflict ending soon,” Kong said. “Ultimately, Israel and Iran are the key parties involved in the war—it’s not solely about the United States.”