By Elsie Kamsiyochi
Global financial markets were jolted on Thursday after U.S. President Donald Trump signaled a sharp escalation in the Middle East conflict, triggering a renewed spike in oil prices and a rapid unwinding of gains across equities, bonds, and currencies.
Investors who had been cautiously optimistic about a possible cooling of hostilities were forced back into defensive mode as markets recalibrated to the prospect of prolonged geopolitical turmoil.
Oil extended its dramatic climb, U.S. Treasury yields swung higher, and global stocks fell sharply as traders reacted to Trump’s televised address, in which he vowed the United States would hit Iran “extremely hard” in the coming weeks and “bring them back to the Stone Ages where they belong.”
Oil Soars as Hopes of De-Escalation Fade
Brent crude leapt more than 7%, rising to around $110 per barrel—a level not seen in months—as energy traders absorbed Trump’s warning and the heightened uncertainty surrounding the Strait of Hormuz, the world’s most critical oil chokepoint. The jump followed weeks of volatility driven by naval clashes, missile strikes, and shifting diplomatic signals from both Washington and Tehran.
The president’s remarks sharply contrasted with earlier suggestions that the U.S. might scale back its operations in the region. Instead, Trump said military action would intensify over the next two to three weeks, leaving markets bracing for further supply disruptions.
Analysts noted that while some recent comments from both capitals hinted at room for negotiation, military maneuvers and strikes continued unabated. “Over the past 48 hours, Tehran and Washington have exchanged a cacophony of statements,” said Felix-Antoine Vezina-Poirier of BCA Research. “But the hard data—shipping flows, strategic target choices, and military activity—still point toward a conflict with no clean off-ramp in sight.”
Wall Street Drops as Uncertainty Mounts
U.S. equities opened lower on a shortened trading week, with markets preparing for Friday’s holiday closure. The Dow slid 0.12%, the S&P 500 moved fractionally lower, and the Nasdaq slipped 0.10%. Although the declines were modest, they underscored the sudden shift in market mood after several sessions of cautious optimism.
European shares followed the same trajectory, with the STOXX 600 down 0.2% and the FTSEurofirst 300 falling 0.22%. Asian markets—already more exposed to energy price shocks and regional security risks—suffered steeper losses. Japan’s Nikkei closed 2.4% lower, while South Korea’s Kospi plunged 4.7%, reflecting heightened worries about global trade and economic spillovers.
Investors Brace for Stagflation Risks
U.S. bond markets registered a sharp reaction as traders priced in the possibility that surging oil prices and supply disruptions could feed a fresh wave of inflation. Yields on U.S. Treasuries spiked before easing slightly later in the session, with the benchmark 10-year note at 4.293%.
The dollar index also strengthened, rising 0.39% as investors sought safety in the greenback amid global uncertainty.
“The only thing that really matters is whether the Strait of Hormuz will open soon,” said Prashant Newnaha of TD Securities. “Trump’s speech suggests that’s unlikely to happen as quickly as markets were hoping.”
Gold and silver—typically viewed as safe-haven assets—surprisingly fell, as rising yields and a stronger dollar weighed on metals markets.
Emerging Markets Feel the Pressure
Countries heavily dependent on energy imports began taking stabilizing measures. India’s central bank abruptly banned trading in offshore non-deliverable forwards in an attempt to arrest the rupee’s slide to repeated record lows. Although the intervention briefly lifted the currency by 2%, analysts cautioned that the relief might be short-lived if oil prices continue to rise.
Meanwhile, Brent futures settled near $106.43—still up more than 5%—while U.S. West Texas Intermediate crude soared over 8%.
Jon Withaar of Pictet Asset Management said investors were recalibrating for a more prolonged conflict. “The expectation of two to three more weeks of military action and Trump not ruling out boots on the ground puts the market back in a defensive stance,” he said.
European Bonds and Rate Expectations Shift
German Bund yields ended a three-day decline, reflecting renewed expectations that the European Central Bank may be forced to pause or even reverse rate cuts if energy-driven inflation surges again. Still, borrowing costs remained on course for their first weekly decline since the conflict began, suggesting investors are balancing geopolitical risk against potential economic slowdown.
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