Prolonged Iran war comes into view…tensions mount across the global economy

Wall Street reassured, expecting a short conflict until recently

Iran holds out longer and more forcefully than expected

Rising odds the war drags on

Some are also factoring in a $200-a-barrel oil scenario

For Americans, $3.5 a gallon is the gasoline pain threshold

Two weeks after the United States and Israel attacked Iran on the 28th of last month, anxiety is spreading among investors over how long the global economy can withstand the kind of sharp volatility seen now. Until recently, Wall Street largely expected the war to end quickly, and both oil and equities had remained relatively stable compared with past Middle East wars. But as Iran’s resistance proves longer-lasting and stronger than anticipated, the balance of risks is shifting toward a protracted conflict.

A stable market is, paradoxically, unsettling

On the 14th (local time), doubts circulated on Wall Street about whether investors are being overly optimistic about the U.S.-Iran war.

Brent crude is hovering around $100 a barrel—relatively stable compared with previous Middle East conflicts. The Wall Street Journal (WSJ) noted that on an inflation-adjusted basis, prices surged to $179 a barrel during Iran’s 1979 revolution, and spiked to $130 a barrel in 2022 right after Russia’s invasion of Ukraine. U.S. stocks have not fallen into the kind of panic seen in past episodes either. Since the Iran war began, the S&P 500 has slipped only about 3%.

The WSJ cited U.S. energy production capacity and releases from the International Energy Agency (IEA)’s emergency stockpiles as factors, arguing they are helping absorb the shock.

In particular, it said the biggest force supporting markets right now is Wall Street’s assumption that the Iran war will end quickly.

Stockpile release covers only 20 days

But as the Iran war lasts longer than expected, calls are growing to prepare for a prolonged conflict.

Even with stockpiles being released, current volumes would cover supply disruptions from a closure of the Strait of Hormuz for only 20 days. That is because the IEA plans to release 400 million barrels, while about 20 million barrels a day transit the Strait of Hormuz. IEA Executive Director Fatih Birol also acknowledged that the release is a stopgap.

Against this backdrop, some analysts say the Donald Trump administration—mindful of a potential oil-price surge—could signal willingness to end the war around late March to early April, when the release hits the 20-day mark. Goldman Sachs likewise expects any Strait of Hormuz closure to be lifted around a similar time.

However, the WSJ warned that market views could shift in an instant if events occur such as the sinking of a large oil tanker, the shootdown of a civilian aircraft, or an attack on a key Saudi Arabian pipeline—raising the risk of a long war.

Trump cannot steer the Iran war at will

The Financial Times (FT) said on the 14th (local time) that “the key risk is that, unlike the massive U.S. tariff shock that rocked the world about a year ago, this time President Trump cannot simply switch the situation off.”

In particular, some forecasts say crude could jump to as high as $200 a barrel if the Iran war drags on. Christina Hooper, chief market strategist at hedge-fund firm Man Group, told the FT, “We are modeling scenarios up to $200 oil,” adding that “orderly market moves are masking fragility.”

Risks are also compounded by the possibility of an artificial intelligence (AI) bubble and concerns about deterioration in the private-credit market.

The FT pointed to the market rout during the 2020 Covid-19 pandemic. When Covid-19 first emerged, investors thought tensions would soon fade, but reality proved different. When markets plunged in March 2020, the Fed cut rates to 0% in an emergency move on Sunday night, the 15th. The next day, U.S. stocks fell another 12%.

Trump may move if inflation jumps

If the Iran war lasts longer than expected, the timing Wall Street is watching is mid-to-late April, when inflation indicators incorporating global oil prices are released, including March consumer price index (CPI), personal consumption expenditures (PCE), and producer price index (PPI). March CPI is due on April 10, and PPI on April 14. March PCE will be released on April 30.

If inflation spikes, President Trump’s momentum to sustain the Iran war could be undermined ahead of the November midterm elections.

In the United States, $3.5 a gallon is widely seen as a gasoline pain threshold. It could cement the view among voters—already strained by cost-of-living pressures under the Trump administration—that inflation is worsening. The U.S. average gasoline price has already moved above $3.5 a gallon, the highest level since May 2024.

New York=Correspondent Park Shin-young nyusos@hankyung.com