In March, escalating military conflict between the U.S., Israel, and Iran, alongside ongoing diplomatic tensions, made Middle East geopolitical risk the dominant global market driver. U.S. and Israeli strikes triggered stronger-than-expected Iranian retaliation, disrupting regional energy infrastructure and the Strait of Hormuz, pushing oil prices sharply higher. Elevated oil prices lifted global inflation expectations, prompting major central banks, including the Fed, to adopt a more hawkish stance. While rates were held steady, policymakers signalled possible hikes if inflation persists. Rising yields and a stronger dollar weakened gold despite heightened risk, while equities came under pressure from higher costs and tighter policy expectations. Energy and defence sectors outperformed, while most other assets declined.
Entering April, marginal easing of tensions and a recovery in risk appetite helped stabilize asset price volatility, although geopolitics remains the key variable. Should a ceasefire agreement be reached, market focus will shift to the pace of recovery in Middle Eastern oil production and trade. While the recent surge in oil prices may partially reverse in the short term, a full return to pre-conflict levels are likely to take longer. At the same time, rising risks of stagflation or economic slowdown could revive expectations for monetary easing, supporting the medium- to long-term outlook for precious and base metals.