As of March 10, 2026, the military conflict between the United States, Israel and Iran continues to ferment, and is setting off an all-round chain impact from the energy side to the global financial market. The near-standstill of navigation in the Strait of Hormuz triggered an escalation of production cuts by Gulf oil-producing countries. The crude oil market staged an epic and extreme market. The surge in oil prices completely reversed global interest rate cut expectations, pushing the Federal Reserve into a policy dilemma. The risk of selling U.S. stocks continued to increase sharply. Currently, geopolitics has completely replaced supply and demand fundamentals and become the core driver of global asset pricing. The market is trapped in high volatility and uncertainty.

Strait shutdown triggers escalation of production cuts, increasing risk of crude oil supply contraction

The war in the Middle East has basically blocked normal navigation in the Strait of Hormuz. The shutdown of this waterway, which is responsible for nearly 30% of the world's crude oil trade, directly triggered a chain of production cuts by OPEC member countries and became the core source of this round of turmoil. The United Arab Emirates has expanded the daily production reduction of offshore crude oil to 800,000 barrels, and the Fujairah oil pipeline that bypasses the Strait is operating at nearly full capacity. Kuwait, which is completely dependent on exports from the Strait, has expanded its production reduction to 350,000 barrels per day, close to 14% of total production capacity. It has officially declared that the sales of petroleum and refining products have encountered force majeure, and the processing rate of domestic refineries has been reduced by 40%.

At present, Iraq has completely suspended crude oil production, Saudi Arabia's largest refinery is still closed, and its alternative transshipment capacity is close to the upper limit. Qatar's world's largest LNG export plant is completely shut down with no recovery timetable. JPMorgan Chase’s latest warning shows that Iraq’s oil storage space has been completely exhausted, Kuwait’s remaining oil storage space is less than 3 days, the United Arab Emirates has only 7 days left, and Saudi Arabia’s storage pressure limit has also been reduced to less than 45 days. Currently, infrastructure in the United Arab Emirates and Kuwait continues to be attacked. Iran has reiterated that it will make an "unlimited counterattack" and there is no timetable for the resumption of navigation in the Strait. Although Trump stated that the conflict will be "over in the short term," he simultaneously authorized the US military to strengthen deployment in the Persian Gulf, further exacerbating market concerns.

Crude oil staged an epic earthquake, and commodities were in turmoil across the board

The rigid contraction of the supply side triggered extreme crude oil prices. On March 9, Brent crude oil soared 29% intraday, hitting nearly US$120 per barrel, setting a new high since mid-2022. It then reversed sharply and closed down, setting the largest intraday rise and fall gap in history; WTI crude oil triggered a circuit breaker at the opening on March 10, and the intraday drop reached 11%. As of Asian midday trading on March 10, Brent and WTI crude oil were trading at US$102.7 and US$99.4 per barrel respectively, a cumulative increase of more than 22% compared with before the conflict broke out. The implied volatility of Brent crude oil remained at a historical high of more than 85%.

Although the G7 has reached a preliminary consensus on releasing 60 million barrels of strategic oil reserves, the market generally believes that this scale is completely unable to fill the daily supply gap of approximately 17 million barrels caused by the Strait shutdown, and it is difficult to reverse the imbalance between supply and demand. Crude oil turbulence quickly swept through all categories of commodities: London aluminum prices hit a new high since 2022, silver plummeted nearly 6% in a single day, and gold's safe-haven properties weakened; Asian spot LNG prices doubled compared with before the conflict, India, Thailand and other countries fell into panic buying of spot goods, and European natural gas prices simultaneously rose by more than 18%.

Oil price shock reverses policy expectations, leaving Fed in dilemma

Oil prices continue to exceed 100, which has completely restructured the policy paths of global central banks. The Federal Reserve has fallen into a desperate situation of fighting inflation and stabilizing growth. Senior strategist Ed Yardeni bluntly stated that the continued high level of oil prices will completely imbalance the dual mission of the Federal Reserve: it will not only reverse the anti-inflation results, but also squeeze corporate profits and household spending, push up the unemployment rate, and completely disrupt the original path of interest rate cuts, and even need to consider restarting interest rate increases.

Market interest rate pricing has experienced a historic reversal: the Fed's expectations for an interest rate cut in March have plummeted from 78% before the conflict to 12%. At the same time, there is a 23% probability of restarting interest rate hikes in March, and expectations for interest rate cuts throughout the year have been reduced from three to less than one. The 10-year break-even inflation rate in the United States jumped to an eight-month high of 2.8%, and concerns about stagflation continue to simmer. The U.S. dollar index rose to a six-month high of 105.8, becoming the only asset that continued to strengthen in this round of conflicts. Traditional safe-haven assets such as U.S. bonds, gold, Japanese yen, and Swiss francs fell across the board. The Japanese yen fell below the 158 mark against the U.S. dollar, setting a new 32-year low.

The risk of selling U.S. stocks has increased sharply, and institutions have accelerated hedging but have not fully withdrawn.

Stagflation and policy uncertainty have intensified the sell-off of U.S. stocks. Yardeni raised the probability of a U.S. stock market crash this year from 35% to 40%, and the probability of a frenzied rise to 2%. He warned that oil prices exceeding 100 will drag down the profit growth of S&P 500 companies by 5-8 percentage points; its baseline expectations have not changed, with a 55% probability of realizing the "roaring 2020s" and a 20% probability of a recurrence of stagflation. Goldman Sachs data shows that as of March 7, hedge fund U.S. stock ETF short orders increased by 8.3%, and increased by an additional 4.2% from March 8 to 9; the S&P 500 fell 3.2% in a single week, and the VIX and Goldman Sachs Volatility Fear Index were both at high levels. Hedge funds showed a divergent layout, bucking the trend and adding positions in energy and consumer staples stocks, while selling technology and consumer discretionary stocks. Overall, the geopolitical conflict in the Middle East remains the core variable, and its direction determines oil prices, inflation and policy pace. If tensions do not ease, high market volatility will continue.