Stocks Slide, Oil Surges as Iran War Roils Markets

A War Premium Hits Every Asset Class

Financial markets around the world absorbed a brutal shock on Monday and Tuesday as the US-Israeli military campaign against Iran entered its fourth day, sending oil prices surging, equities plummeting, and rattling currency and bond markets simultaneously. The selloff was among the most coordinated across asset classes since the early days of the 2022 Russian invasion of Ukraine.

In early trading on Tuesday, March 3, the Dow Jones Industrial Average dropped more than 1,000 points, or 2.1%, before paring some losses. The S&P 500 shed 2% and the Nasdaq fell 2.1%. European markets fared even worse: Germany's DAX tumbled 2.23%, France's CAC 40 lost 1.68%, and the pan-European Stoxx 600 fell 1.83%.

Asia Bears the Brunt

Asian exchanges led the global decline. South Korea's KOSPI cratered 7.24% — its worst single-day performance in years — as it returned from a public holiday to catch up with Monday's losses. Japan's Nikkei 225 fell 3.08% and the broader TOPIX dropped 3.24%. Hong Kong's Hang Seng Tech Index shed 2.26%, though mainland buyers poured over 16 billion Hong Kong dollars into the market seeking bargains.

Oil and Gas Markets in Turmoil

Brent crude oil surged 7.5% to $83.58 per barrel — up from roughly $70 a week earlier — as traders priced in the risk of a prolonged closure of the Strait of Hormuz. The strait carries approximately one-fifth of global oil consumption each day. US benchmark crude rose 7.6% to $76.64 a barrel.

Natural gas markets were even more volatile. European gas prices surged more than 35% as the continent, already sensitive to energy supply disruptions, grappled with the prospect of reduced LNG flows from the Persian Gulf. According to NPR, analysts at Wood Mackenzie warn oil could break $100 per barrel if Hormuz tanker traffic is not restored quickly — a scenario that would push US gasoline prices 10 to 85 cents higher at the pump.

Winners Amid the Wreckage

Not all sectors suffered. Defence stocks surged as investors bet on prolonged military spending. BAE Systems jumped 6.1% in London, while Germany's Rheinmetall gained 2%. In the United States, Nvidia advanced 2.9% as tech equities showed relative resilience compared to energy-intensive industrials and financials.

Gold, initially pushed above $5,300 per ounce in a classic safe-haven rush, pulled back 4.9% to $5,053 on Tuesday as rising Treasury yields made the non-yielding metal less attractive. The dollar, however, gained nearly 1% against a basket of currencies as investors sought liquidity.

Macro Risk at a Crossroads

The divergence in expert opinion reveals the core uncertainty. JPMorgan Chase warned that the conflict "generates greater macroeconomic risk than recent military conflicts" and could prove as economically damaging as Russia's 2022 Ukraine invasion. Wells Fargo analysts countered that history favours buyers of geopolitical dips, noting the S&P 500 rallied 16% during Gulf War One and 14% in the early months of Gulf War Two.

The critical variable is duration. President Trump indicated the conflict could last four weeks or more — a timeline that, if accurate, would sustain energy price pressure and inflation fears long enough to materially slow global growth. Fortune reported that Wall Street war desks are already mapping scenarios where a prolonged Hormuz blockade pushes inflation back above 4% in Europe and forces central banks to pause or reverse rate-cutting cycles.

For now, markets are caught between the instinct to sell the uncertainty and the historical lesson that wars, however devastating, tend not to derail long-term bull markets. Tuesday's partial recovery in US equities suggests investors have not yet made up their minds.