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A shaky start to the week is in store for financial markets after the U.S. and Israel attacked Iran over the weekend.
Oil prices are expected to rise amid concerns that supplies from the Middle East could be disrupted, while investors are likely to scale back their exposure to risky assets, including stocks, according to analysts. Gold, which has already hit a series of record highs in recent months, could be a beneficiary as investors seek safe havens.
The bombing of Iran early Saturday killed the country’s Supreme Leader, Ali Khamenei, and caused damage throughout the country. It sparked a flurry of retaliatory strikes by Iran against Israel and U.S. interests in several countries across the region throughout the weekend.
Why This Matters to You
The escalation of conflict in the Middle East has sparked fresh geopolitical and economic uncertainty that threatens to create substantial market volatility. A surge in oil prices would have an impact on what consumers pay for gasoline, and could weigh on economic activity.
“The initial market reaction for this type of event would typically see Treasury yields move lower and equities lower—mostly a risk-premium repricing,” Franklin Templeton Institute analysts led by Chief Investment Strategist Stephen Dover said in a report Saturday.
Oil and natural gas prices are especially vulnerable to sharp moves higher, not only because the Middle East is such a major producer of the commodities but because of rising shipping costs.
“Oil prices are likely to gap higher, and the move may not fade quickly because the market is not only pricing barrels, but also the cost of moving barrels,” said Charu Chanana, Chief Investment Strategist at Saxo. “Even without a full shutdown, higher war-risk premia, rerouting and insurance repricing can keep crude and freight costs elevated.”
Even before the Iran attack, oil prices had been surging amid concerns about potential military action in the Middle East. Brent crude oil futures, the global benchmark, closed Friday at near $73 per barrel, their highest level since June. Brent futures have gained about 20% since the start of the year.
As for the stocks that stand to be affected, Chanana said airlines and other travel and leisure names could be hurt by rising fuel costs and lower demand, while shares of shipping companies and firms exposed to global trade are also vulnerable. On the flip side, many energy stocks would benefit from higher oil prices, while defense, security and critical infrastructure providers also appear to be well-positioned.
“Gold, defense and other security-linked enablers are increasingly becoming core building blocks as geopolitical risk becomes more frequent rather than exceptional,” Chanana said. “In that environment, active risk management matters, because leadership can rotate quickly as the map changes.”
Investors will get a sense of the market impact later Sunday when futures trading starts at 6:00 p.m. ET. Bitcoin, which trades continuously seven days a week, dropped as low as $63,000 early Saturday, down from a high on Friday around $68,000, but had rebounded to $66,400 by Sunday afternoon.
Major U.S. stock indexes lost ground last week to cap off a rocky month of trading dominated by investor concern about AI-related disruptions, fresh uncertainty about tariffs, and the outlook for the economy and interest rates. The yield on the 10-year Treasury notes, which affects interest rates on all sorts of consumer loans, closed Friday at its lowest level since October 2024.
“Historically, geopolitics often produce an initial jump in risk premia before investors conclude the aggregate earnings hit is modest,” Franklin Templeton Institute said. “We would not yet label this a clean buy-the-dip setup—duration, shipping/insurance mechanics, and the endgame matter more than the first headline.”
