Having fallen just 3% year-to-date and trading 5% below its record peak, the S&P 500 remains well short of correction or bear-market levels, indicating that investors have yet to react with panic to the U.S.-Israel conflict with Iran. However, this sentiment may shift in the near term.
Admittedly, crude oil has surged over 40% in the two weeks since hostilities commenced, gaining nearly 70% so far this year. Yet prices have not exceeded the highs reached following Russia’s 2022 invasion of Ukraine, even though Iran’s effective blockade of the Strait of Hormuz has trapped approximately 20% of global oil supplies.
“No resolution appears imminent,” wrote Dan Alamariu, chief geopolitical strategist at Alpine Macro, in a Thursday research note. “The Strait of Hormuz is effectively shut down, and markets are beginning to factor in an extended and uncertain conclusion.”
Even after devastating strikes that have crippled Iran’s military capabilities and eliminated senior leaders, the regime maintains the ability to menace vessels in the Persian Gulf and sustain elevated oil prices. Meanwhile, Tehran currently shows no willingness to negotiate a settlement, aiming instead to maximize economic damage now in order to discourage future attacks, Alamariu observed.
Nevertheless, Alamariu anticipates the conflict concluding within two months, as Iran confronts risks to both its economic stability and domestic political authority from attacks targeting instruments of control such as the Islamic Revolutionary Guard Corps and Basij militia. He further noted speculation about internal regime infighting, particularly following Mojtaba Khamenei’s appointment as supreme leader.
“Consequently, even Tehran’s leadership has motivation to ultimately terminate hostilities, since a protracted war threatens internal divisions and the regime’s survival,” he wrote.
President Donald Trump faces his own limitations, including elevated oil prices and weak public backing for the military engagement with midterm elections approaching later this year.
In the interim, however, both parties appear ready to intensify hostilities. On Friday, U.S. forces struck military installations on Kharg Island, Iran’s primary oil export hub, while deploying 2,500 Marines to the Middle East. Iran, for its part, has escalated attacks on civilian infrastructure across Gulf neighbors and issued threats against the region’s largest port on Saturday.
Alamariu highlighted that Iran’s Houthi allies in Yemen will probably attempt to shut down Red Sea commercial shipping routes, compounding the economic disruption already caused by the Strait of Hormuz closure.
“A concurrent disruption of both waterways would amplify the impact, affecting the roughly 5 million barrels per day of oil that typically pass through Bab el-Mandeb and disrupting a key Europe-Asia trade corridor,” he cautioned. “Such a scenario would likely fuel additional inflationary pressures, particularly in Europe.”
At the same time, while a comprehensive U.S. ground invasion of Iran appears improbable, the seizure of Kharg Island could sever the regime’s primary revenue stream and compel a negotiated settlement without requiring occupation of the Iranian mainland, according to current strategic thinking.
Yet even with a Marine presence on Kharg Island, forces would remain vulnerable to Iranian missile and drone attacks, which have successfully hit U.S. military installations throughout the Middle East despite advanced air-defense networks.
Another more severe escalation scenario involves targeting desalination facilities that supply most of the Gulf region’s fresh water. David Sacks, President Donald Trump’s AI and crypto advisor, raised this prospect and cautioned that such attacks could make the Gulf region nearly uninhabitable.
Alamariu conceded that the probability of the conflict extending beyond his two-month forecast is increasing, which would likely keep the Strait of Hormuz closed throughout. This scenario would maintain Brent crude prices above $100 per barrel and potentially push them beyond $150. Even so, markets have not yet hit peak panic levels.
“Maximum war-related panic will probably arrive within the next one to three weeks,” he forecasted. “As the conflict persists, investors will increasingly factor in economic harm.”
Based on historical patterns, oil prices typically reach their apex four to eight weeks after similar conflicts begin, Alamariu noted. The current Iran war has just completed its second week.
Such panic could manifest as a worldwide flight from risk, including a sharp equity market selloff, potentially sparked by Houthi involvement, Gulf oil producers invoking force majeure, or additional U.S. military escalation.
Should the Strait of Hormuz remain shut, secondary impacts would affect agricultural products and semiconductor manufacturing as critical supplies such as fertilizer and helium become scarce, he indicated.
“Should our assessment prove incorrect and the war extends beyond two months, the strategy would transition from capitalizing on volatility to protecting against lasting economic impairment,” Alamariu added.
The International Energy Agency has stated that the Iran conflict has created the most severe oil supply disruption on record. Although member countries have committed to releasing 400 million barrels from strategic reserves, the daily volume from these stockpiles will prove insufficient to replace the lost daily production.
Energy consultancy Wood Mackenzie likewise cautioned on Tuesday that the abrupt loss of 15 million barrels per day of Gulf oil output would require prices to reach $150 per barrel before demand destruction occurs and restores market equilibrium.
On an inflation-adjusted basis, oil prices did reach $150 following Russia’s Ukraine invasion, yet Wood Mackenzie Chairman and Chief Analyst Simon Flowers suggested the present circumstances could prove more severe.
“The supply volumes jeopardized now are substantially larger—and genuine,” he stated. “From our perspective, $200 per barrel is not beyond the bounds of possibility in 2026.”