Highlights:
- US oil near $100 to $150 keeps inflation risks elevated and limits the Federal Reserve’s flexibility.
- A stronger US dollar is reshaping the safe-haven trade, pressuring gold and equities, including the S&P 500.
- Upcoming US data — including JOLTS, non-farm payrolls, and ISM Manufacturing PMI — will test if the global growth engine is beginning to stall.
The US-Iran conflict has entered a trickier phase for global markets. What started as a geopolitical flashpoint is now evolving into something broader: a sustained energy and shipping disruption risk that is feeding directly into the global macro outlook.
Over the weekend, the conflict widened as Houthi became more directly involved, raising fresh concerns across key maritime chokepoints including the Red Sea, Bab el-Mandeb, and the already strained Strait of Hormuz.
Nowhere is this escalation more visible than in oil markets. Brent crude is on track for a record monthly increase, recently surging as much as 3.7% to hit $116.78 a barrel, while West Texas Intermediate has pushed above the $100 mark. This surge is not just an energy story — it is feeding directly into inflation expectations and broader asset pricing. That standoff is also keeping the U.S. Dollar Index (USDX) elevated and the S&P 500 under pressure.
From an economic perspective, this is no longer merely a war premium on oil; it is a global cost-of-living crisis.
The Energy-Inflation Reality & Dollar-Gold Divergence
When Brent crude sustains levels above $115, it stops being a geopolitical story and becomes a macroeconomic constraint. Elevated energy costs feed quickly into transportation, production, and consumer prices, raising the risk that inflation proves more persistent than expected.
This creates a difficult trade-off for the Federal Reserve. In a typical slowdown, policymakers would have room to ease policy to support growth. But with energy prices pushing inflation higher, that flexibility is limited. The Fed is effectively caught — unable to pivot decisively toward rate cuts, while inflation risks remain active.
This shift in the policy outlook is now spilling directly into currency and commodity markets.
In a classic geopolitical scare, gold and the dollar usually rise together while equities fall. This time, the oil spike is so severe that markets are also repricing the Fed path, with investors moving away from 2026 rate-cut expectations and toward the possibility of tighter policy.
The U.S. dollar is on track for its strongest monthly gain since July, while gold has fallen more than 15% in March and is having its worst monthly performance since 2008.
Will April Bring A Turning Point?
As markets move into April, attention will likely shift from military headlines to economic data in the US. Key releases — including JOLTS, non-farm payrolls, and ISM manufacturing PMI — will be critical in determining whether the global growth engine is starting to slow under the weight of higher energy costs.
A combination of softer labour data and persistently high inflation would reinforce the current narrative: slower growth, tighter policy, and sustained market volatility across risk assets.
At the same time, geopolitical developments remain central. April 6 marks the end of the current 10-day tactical pause on strikes targeting Iranian energy infrastructure. While the market is hoping for some form of de-escalation, the risk of renewed strikes remains firmly on the table.
There is also a clear military and economic logic underpinning expectations of a turning point. Reports suggest that a significant portion of Iran’s missile stockpile has already been degraded, while the presence of the 31st Marine Expeditionary Unit aboard the USS Tripoli signals that pressure could escalate quickly if negotiations fail.
At the same time, the economic incentive is equally clear: bringing Brent crude back below $80 remains a priority to ease inflation pressures and stabilise growth expectations.
That leaves markets in a familiar but uneasy position. While the incentive for de-escalation is strong, the path forward remains uncertain. For now, investors must prepare for three possible outcomes: a breakthrough in de-escalation, a renewed phase of direct strikes, or a prolonged proxy conflict that extends into the rest of 2026.
Until one of these scenarios begins to dominate, markets are unlikely to find clear directions, leaving volatility, rather than trend, as the defining feature in the weeks ahead.
By Justin Khoo, Senior Market Analyst, VT Markets