[International Finance Brief] Escalating tensions in the Middle East trigger turbulence in international financial markets… oil prices soar, and the US dollar strengthens.

The escalation of military tensions in the Middle East has heightened uncertainty in international financial markets. Especially as conflicts between Iran and the United States intensify, international oil prices soar, and safe-haven assets become more favored.

According to the International Financial Center’s Rapid Financial Report released on the 13th, the U.S. considers preventing Iran from acquiring nuclear weapons a more important goal than rising oil prices. Iran, in response, emphasizes the possibility of blocking the Strait of Hormuz. Amid this geopolitical tension, global financial markets show a trend of reduced risk asset preference.

Oil prices surge… reflecting the possibility of prolonged conflict

As reports emerge of Iran attacking overseas oil tankers and damaging U.S.-related facilities across the Middle East, the international crude oil market experiences significant volatility. Iran’s mention of blocking the Strait of Hormuz as a pressure tactic has further escalated tensions.

In this context, international oil prices soar. WTI crude oil prices rose approximately 9.7% in one day, reaching around $95 per barrel. Some market forecasts suggest that if supply shocks intensify, prices could reach as high as $150.

The International Energy Agency assesses that this conflict could lead to the largest-ever disruption in oil supply. However, some opinions suggest that if some Gulf countries expand exports bypassing the Strait of Hormuz, supply disruptions after April could be partially alleviated.

Financial markets, risk assets weaken

The intensification of geopolitical tensions also directly impacts financial markets. The U.S. S&P 500 index fell about 1.5%, and the European Stoxx 600 index declined 0.6%.

As safe-haven assets become more preferred, the U.S. dollar strengthens. The dollar index rose about 0.5%, while the euro and yen depreciated by 0.5% and 0.3%, respectively. The yield on the 10-year U.S. Treasury increased due to inflation pressures and positive employment indicators.

The volatility index, reflecting market unease, rose to 27.29, up about 12% from the previous day. South Korea’s CDS premiums also increased, indicating a broader risk perception.

Prolonged war amplifies inflation pressures

Experts believe Iran can leverage its influence in energy markets to strengthen its bargaining position, making it difficult for the conflict to end easily. Analysts point out that Iran has the capability to exert economic pressure through blocking the Strait of Hormuz and drone attacks on the U.S. and its allies.

Europe also worries about the economic impact of a prolonged war. The EU is reviewing energy price control policies such as natural gas price caps, with forecasts suggesting that if the conflict persists, regional inflation could exceed 3%.

A key variable for the global economy

On the other hand, China approved its 15th Five-Year Plan at the National People’s Congress, focusing on expanding domestic demand and technological independence to drive economic restructuring. The Bank of Japan also stated it will decide on monetary policy based on economic and price outlooks.

Market assessments suggest that the Middle East conflict has moved beyond short-term geopolitical risks to become a core variable influencing global financial markets, energy prices, and inflation trends.

Source - International Financial Center Report