Stocks Fall as Iran War Keeps Oil Just Above $100 and Changes Rate Outlook
SINGAPORE/LONDON (Reuters) – European shares fell on Friday as investors grappled with uncertainty over the duration of the war in Iran, which has disrupted global energy supplies and spurred inflation fears that have altered the outlook for interest rates.
The price of oil, which has risen 40% since the start of the war, remained just above $100 a barrel, its highest level since mid-2022. Prices moderated somewhat on Friday after the United States issued a 30-day license for countries to buy sanctioned Russian oil and petroleum products that were stranded at sea.
Europe’s STOXX 600 fell 0.6% in early trading, putting the index on track for a 6.1% drop in March so far, its biggest two-week decline in a year.
US futures were weak, with S&P 500 e-minis losing 0.1% following sharp declines on Thursday that saw the S&P 500 close down 1.5%.
Meanwhile, the US dollar has become the safe haven of choice during the tumult, putting pressure on most other currencies. The dollar was headed for a second straight week of gains and has risen 2.5% since the war broke out in late February.
Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin in Zurich, said there was a sense of urgency in markets around the duration of the conflict.
“If we don’t make any progress and just maintain the status quo for a prolonged period… that would obviously mean that oil prices will stay high for longer, and we will have a more pronounced impact on the economy and on inflation,” he said.
Oil price drives market
Brent crude oil futures rose 0.8% to $100.30 a barrel, while West Texas Intermediate crude settled at $95.98 a barrel. Both were around $60 in early 2026.
Traders are trying to predict how long the oil supply disruption will last, based on the latest news about the war.
“Headlines are hitting the market like water from a fire hose, which is impacting the price of oil and, consequently, financial markets,” said Mitch Reznick, head of the fixed income group at Federated Hermes.
As Iran steps up its attacks across the Middle East while its new supreme leader Mojtaba Khamenei vowed to keep the Strait of Hormuz sea route closed, investors are bracing for a prolonged conflict and higher oil prices.
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The specter of rising inflation has led markets to quickly reprice what they expect from central banks this year, with traders now anticipating just 20 basis points of easing from the Federal Reserve compared to the 50 basis points of cuts priced in last month.
Two-year Treasury yields, which typically move in step with the Fed’s interest rate expectations, hit a six-month high on Thursday.
“With oil prices likely to remain elevated, investors should be prepared for continued volatility and potentially further declines in the near term,” said Vasu Menon, managing director of investment strategy at OCBC in Singapore.
Outlook for changing rates
José Torres, senior economist at Interactive Brokers, said the impact of rising oil prices on corporate margins, inflation expectations, rate cut prospects and yields is causing volatility, leaving participants with few places to hide.
“Indeed, dwindling optimism about Fed rate cuts amid tightening cost pressures is weighing on traditional safe havens like silver, gold and government debt.”
The two-year bond yield fell 2 basis points to 3.74% after hitting its highest level since August 22 on Thursday. The yield has gained about 35 basis points in the two weeks since the war began.
Investors’ attention will be focused on a series of monetary policy meetings next week where the Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England will meet, with most expected to keep rates unchanged. The Reserve Bank of Australia is expected to raise rates next week.
The yen hit its weakest level since July 2024 at 159.69 per US dollar on Friday, as Japan warned it was ready to take steps to protect against declines in the yen. He was last at 159.41.
Analysts said the bar for intervention is higher this time, as any intervention now could prove futile in the face of relentless dollar buying.
In currencies, the euro fell 0.5% to $1.14575, on track for a weekly drop of almost 1.4%. The dollar index was at 100.1, forecast for a weekly advance of about 1%.
Gold rose 0.2% to $5,088.4 an ounce on Friday, but is expected to fall 1% for the week.
(Reporting by Ankur Banerjee in Singapore and Lucy Raitano in London Editing by Sam Holmes and Peter Graff)