Middle East Conflict Sparks Oil Surge and Stock Market Slide: What Investors in Oman Need to Know
Oil prices surged sharply on Monday as the escalating military conflict in the Middle East showed no sign of abating, raising concerns over the stability of the global economic recovery and the potential return of inflationary pressures.
Brent crude soared by 6.4%, reaching $77.57 per barrel after briefly spiking above $82.00. U.S. crude also rose 6.2% to $71.17 per barrel. Meanwhile, gold, viewed as a safe-haven asset amid uncertainty, climbed 1.6% to $1,360 an ounce.
The intensifying military actions by the United States and Israel against Iran continued unabated, with Iran retaliating through missile attacks across the region, heightening fears of a wider regional conflict. Former U.S. President Donald Trump indicated that the conflict could persist for another four weeks, emphasizing that attacks would continue until American objectives are achieved.
Attention remains fixed on the Strait of Hormuz, a strategic chokepoint through which approximately 20% of the world’s seaborne oil and liquefied natural gas passes. Although the waterway has not been officially blocked, vessel tracking systems showed tankers accumulating on both sides, either due to security concerns or difficulties in securing insurance for passage.
Jorge Leon, head of geopolitical analysis at Rystad Energy, noted, “The most immediate and tangible development affecting oil markets is the effective halt of traffic through the Strait of Hormuz, preventing 15 million barrels per day of crude oil from reaching markets.” He warned that without swift signs of de-escalation, a significant upward revaluation of oil prices is expected.
A sustained increase in oil prices risks reigniting global inflation while also imposing additional costs on businesses and consumers, potentially weakening demand.
In response to the crisis, OPEC+ agreed on Sunday to a modest oil production increase of 206,000 barrels per day for April. However, the ability to transport this additional oil out of the Middle East remains uncertain.
Alan Gelder, Senior Vice President for refining, chemicals, and oil markets at Wood Mackenzie, compared the current situation to the 1970s Middle East oil embargo, which saw prices triple to about $12 per barrel in 1974—equivalent to $90 per barrel today. “Surpassing this level in the current market, given concerns over significant supply losses, appears very achievable,” he remarked.
The rising oil costs weighed heavily on markets, with Japan’s Nikkei index falling 1.3%, particularly impacting airlines. Chinese blue chips dipped slightly by 0.1%, reflecting China’s reliance on Middle Eastern oil imports. MSCI’s broader Asia-Pacific index, excluding Japan, declined 1.2%.
In the Middle East, stock exchanges in the UAE and Kuwait were temporarily closed, citing “exceptional circumstances.” European futures for the EUROSTOXX 50, DAX, and FTSE also declined by 1.3%, 1.4%, and 0.6%, respectively. Meanwhile, U.S. S&P 500 and Nasdaq futures lost 0.8%.
The oil price surge influenced currency markets, with the U.S. dollar strengthening due to America’s status as a net energy exporter and Treasury securities’ appeal as a safe haven. The euro slipped 0.2% to $1.1787. The dollar also gained 0.3% against the Japanese yen, climbing to 156.44 yen, as Japan’s heavy oil import dependence complicated its traditional safe-haven status.
U.S. 10-year Treasury yields steadied around 3.97%, after briefly touching an 11-month low of 3.926%. Confidence in the bond market was rattled by the recent collapse of UK mortgage lender MFS, which entered administration amid allegations of financial irregularities and had borrowed £2 billion ($2.69 billion). This event heightened concerns over credit risks, impacting banking stocks and sectors sensitive to artificial intelligence developments.
Investors are bracing for a busy week of U.S. economic data releases, including the ISM manufacturing survey, retail sales, and the critical payroll report. Any signs of economic weakness could undermine confidence following a disappointing fourth quarter, but might also increase expectations for Federal Reserve rate cuts. Current market pricing indicates roughly a 50% chance of easing in June and about 58 basis points of cuts throughout the year.
The evolving situation in the Middle East remains a key risk factor to global markets, as the potential for prolonged conflict threatens energy supplies and economic stability worldwide.
Special Analysis by Omanet | Navigate Oman’s Market
The ongoing Middle East conflict and the resulting disruption at the Strait of Hormuz pose significant risks for Omani businesses reliant on stable oil exports and global energy trade routes. With oil prices surging sharply, smart investors should consider the opportunities in energy sector volatility while preparing for potential inflationary pressures and supply chain disruptions. Entrepreneurs and policymakers must monitor developments closely to capitalize on export markets and strategically hedge against prolonged regional instability.
