One month into the Iran war, oil has surged more than 50% — and markets have largely stopped listening to White House assurances that it’s almost over.
On March 9, just one week after the conflict began and after some 3,000 targets had been struck, President Trump declared the war “very complete, pretty much” in a call with CBS. He described Iran as having no navy, no functioning air force, and missiles “down to a scatter.” Markets responded — oil dropped around $13, falling to $91 a barrel. Three weeks later, Brent crude is trading above $113 and West Texas Intermediate has climbed past $101. Brent’s monthly gain is now on track to be the steepest since the 1990 Gulf War.
The supply disruption has spread well beyond the Middle East. South Koreans have been urged to take shorter showers, Thailand has asked citizens to wear lighter clothing to reduce energy consumption, and the Philippines is distributing cash aid to motorcyclists hit by fuel costs. US gas prices hit a national average of $3.99 — up from $2.98 in February and the highest level since the 2022 Ukraine crisis. The International Energy Agency released 400 million barrels from strategic reserves to ease the shock; prices kept climbing anyway.
The War Is Widening
Iran-backed Houthi rebels entered the conflict over the weekend, launching cruise missiles and drones at Israel after weeks on the sidelines. The Pentagon is preparing for what could be weeks of ground operations inside Iran, according to the Wall Street Journal — potentially including a mission to extract Iran’s remaining uranium stockpiles. Trump posted on Truth Social threatening to destroy Iran’s power plants, oil wells, and the Kharg Island export hub if a deal isn’t reached and the Strait of Hormuz isn’t reopened. He separately told the Financial Times his preference was to “take the oil” — a move that would require seizing Kharg Island.
The Houthis’ entry into the conflict raises the prospect of the Bab el-Mandeb strait at the southern end of the Red Sea also being threatened, cutting off the main alternative shipping route for oil exports. Société Générale analysts are forecasting Brent averaging $125 in April, with spikes toward $150 if that waterway closes.
Stagflation Fears Mount
Wall Street is increasingly wrestling with a stagflation scenario — weak growth and rising inflation simultaneously — which is among the most difficult environments for both bonds and equities. Jim McCormick, chief global macro strategist at Citi, told Bloomberg TV that inflation has been stuck around 3% for two years and could now move “significantly higher” as commodity costs feed through. “Growth is going to be marked down as a result of this conflict; inflation is going to be marked up. It’s not great for bonds. It’s not great for equities. It’s a pretty bad mix for markets in general,” he said.
Federal Reserve chair Jerome Powell, speaking at Harvard, acknowledged the Fed’s 2% inflation target remains intact but was candid that its tools have “no meaningful effect on supply shocks” — meaning the central bank cannot shield consumers or markets from energy-driven price increases in groceries, fuel, or other essentials.
Economist Ed Yardeni described investors as retreating into a “fetal position” — exhausted by the volatility and uncertain whether the conflict’s escalation is real or bluster. “The fog of war is getting thicker because of the likelihood of US boots on the ground,” he wrote to clients.