War on the Markets - The Iran Conflict Drives Oil Prices, Diplomacy and the Military Into a New Storm

While rockets are once again being launched in the Middle East and sirens are sounding, the financial markets are reacting nervously. On Monday morning the American stock markets rose significantly after oil prices temporarily declined. The benchmark index S&P 500 was up about one percent in early trading after it had previously lost ground for three consecutive weeks. The Dow Jones gained about 325 points, an increase of 0.7 percent. The technology index Nasdaq reacted particularly strongly and rose by 1.2 percent. Once again the trigger lay in the oil market. The price of American crude oil temporarily fell by 4.1 percent to 94.62 dollars per barrel after it had earlier climbed above 102 dollars in the morning. The international Brent variety also declined and stood at around 101.72 dollars after previously rising to as high as 106.50 dollars. Since the beginning of the American Israeli attacks on Iran, the oil price had previously risen almost continuously from about 70 dollars per barrel and had triggered worldwide concerns about economic consequences.

While traders in New York and London watch their screens, the situation in the Middle East continues to escalate. Explosions were heard in Doha as Iran again fired rockets toward Qatar. The Interior Ministry urged the population to remain in their homes. Shortly before that the country’s air defense systems had already intercepted a first wave of attacks. Sirens also sounded in Bahrain. Authorities called on people to immediately seek shelters. At the same time Israel reported rocket warnings in Jerusalem and the surrounding region. Sirens there warned of projectiles from Iran.

The United Arab Emirates reported a massive attack with six ballistic missiles and 21 drones from Iran. According to the Ministry of Defense, a total of 304 ballistic missiles, 15 cruise missiles and 1,627 drones have been fired at the country since the beginning of the war. Seven people have been killed, including two soldiers.

The sea also shows how strongly the war has changed the region. The American commander in the Middle East, Admiral Brad Cooper, explained that U.S. forces are concentrating on weakening Iran’s ability to threaten commercial ships in the Persian Gulf. The attacks on cargo vessels have practically brought traffic through the Strait of Hormuz to a standstill. Normally about one fifth of the world’s traded oil flows through this strait. The disruption of this route has pushed prices higher and increased pressure on Washington to stabilize the situation.

Iran, however, presents the situation completely differently. Foreign Minister Abbas Araghchi said in Tehran that the Strait of Hormuz is not generally closed. It is only blocked for the United States, Israel and their allies. For other countries it remains open. In fact, initial ship movements show that individual tankers are again daring the passage. An oil tanker controlled by Pakistan named Karachi passed through the strait on Sunday according to the ship tracking service MarineTraffic and is now sailing in the Gulf of Oman. India is also expecting a ship carrying more than 40,000 tons of liquefied gas that crossed the Strait of Hormuz over the weekend. According to Indian authorities, however, 22 ships are still waiting west of the strait for a safe passage.

The war has also triggered political tensions between Washington and European governments. British Prime Minister Keir Starmer defended his decision not to participate in the attacks on Iran. Donald Trump had sharply criticized him because Britain had neither sent an aircraft carrier nor fully allowed American bombers to use British bases without restriction. Starmer now said that British soldiers may only be deployed if the operation is legally secured and a clear plan exists. Politicians demanding the opposite would drive the country into a war without preparation.

Italy has also reacted cautiously to American demands for military support in reopening the Strait of Hormuz. Foreign Minister Antonio Tajani said in Brussels that Rome supports strengthening European naval missions in the Red Sea but considers an expansion into the Persian Gulf unlikely.

In Washington itself the government is trying to downplay concerns about the economic consequences of the war. Treasury Secretary Scott Bessent said on television that rising oil prices were being exaggerated. The media were trying to turn it into a crisis, he said. Once the conflict ends, prices will fall again. The government has not so far tried to artificially pressure prices through trading in oil futures. Interior Secretary Doug Burgum had previously said that such possibilities had at least been discussed.

The president’s schedule is now also under the influence of the war. Donald Trump is considering postponing his planned trip to China. Officially this is explained by logistical reasons. In reality the president apparently wants to remain in Washington in order to coordinate the war. His spokeswoman Karoline Leavitt said that talks with Chinese President Xi Jinping are continuing. The trip could however be postponed as long as the military operation called “Epic Fury” continues.

At the same time Washington is trying to win allies for an international action to secure the Strait of Hormuz. According to Keir Starmer, Britain is discussing the deployment of mine clearing drones in the region but for now does not want to send a warship. Germany is also demanding more clarity about the objectives of the American Israeli operation. Foreign Minister Johann Wadephul said before a meeting of EU foreign ministers that Washington and Tel Aviv must explain when they consider their military objectives achieved. Only then could a new security order for the region be discussed.

The effects of the conflict now extend far beyond Iran and Israel. In Lebanon four people were killed in an Israeli airstrike on the village of Qantara, including two children. At the same time Israel’s defense minister Israel Katz pointed out that hundreds of thousands of Lebanese who fled from the south of the country cannot return for the time being. Only when northern Israel is secure again can a return be discussed.

Tensions are also growing within Lebanon itself. The Foreign Ministry sharply criticized the Shiite militia Hezbollah after UN peacekeeping forces in the south of the country had been fired upon. The government reminded that military activities of Hezbollah are officially prohibited and that no armed group outside state control may push the country into further instability.

In addition to the military news the war is also producing unusual political and social side effects. Israeli actress Gal Gadot was awarded the Genesis Prize, which has now been doubled to two million dollars. The funds are intended to support organizations that assist Israel after more than two years of war in caring for the wounded and traumatized people.

The conflict also has direct economic consequences in Iraq. Iraqi Oil Minister Hayan Abdul Ghani announced that a new pipeline from Kirkuk toward Turkey is expected to begin operating within a week. It is intended to transport up to 250,000 barrels of oil per day and thereby replace an export route that was disrupted by the war and the blockade of the Strait of Hormuz.

While stock markets react in the short term to declining oil prices, a look at the region shows a completely different picture. Rockets over Qatar, drones over the Emirates, sirens in Israel and diplomatic tensions between Western governments show how quickly this war can expand further. Each new wave of attacks changes the situation in the energy markets, on shipping routes and in the capitals of the world. And at the moment nobody can say how long this situation will continue.