Renewed fighting between the U.S. and Iran added yet another dose of uncertainty to the global economy.
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Middle East conflict
How could the U.S. war in Iran affect the world’s oil supply?
Crude oil prices jumped and stock prices fell after President Trump declared an end to the fragile ceasefire in the Strait of Hormuz. The U.S. military attacked dozens of targets along the Iranian coastline overnight, in retaliation for what appeared to be Iranian attacks on vessels trying to transit the strait.
The hostile action threatens to prolong volatility in global markets just weeks after investors had reacted with relief after Trump and Iran had agreed on a ceasefire.
Both the U.S. and international benchmarks for crude oil jumped about 7% on Wednesday, although they still remain well below their springtime peaks. Meanwhile, the Dow Jones Industrial Average tumbled more than 800 points, or 1.5%, after hitting a record high just two days earlier.
The resumption of attacks renews the prospect of inflationary pressure after a month of falling gasoline prices. The initial price spike was muted, however, suggesting that markets don’t expect a return to full-blown war. Retail gasoline prices in the U.S. rose less than a penny per gallon overnight, according to AAA, though they could climb higher in the coming days as higher crude oil costs are passed along.
Global markets have been volatile ever since the U.S. and Israel first attacked Iran in February — and the jump in bond yields seen overnight signals that investors expect renewed uncertainty.
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All eyes are on the Federal Reserve
The ongoing tensions with Iran will also continue to add pressure on the Federal Reserve under its new chairman, Kevin Warsh.
Economy
Federal Reserve holds interest rates steady and hints at rate hike later this year
A market gauge — the CME FedWatch tracking tool — suggests investors now see a better than 1-in-3 chance that the Fed will raise interest rates this month. That’s up from about a 1-in-4 chance on Tuesday, before the ceasefire broke down.
The central bank is closely monitoring higher energy prices, which have already pushed inflation well above its 2% target. The Trump administration is also preparing for a new round of global tariffs, which could put more upward pressure on import prices in the second half of the year.
Even before the latest attacks, the International Monetary Fund had downgraded its forecast for economic growth this year. The IMF expects the global economy to grow 3% in 2026, down from 3.5% last year.
“The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions,” the IMF warned in its .
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