Markets aren’t ready for a US move on Iran

If the United States launches direct military strikes against Iran, global stock markets will likely react with speed and force—dropping hard before any official policy statements are made or economic forecasts adjusted.

This would not be a measured repricing. It would be a sharp reflex from investors who have, until now, largely overlooked the rising threat of a wider regional war in the Middle East.

Equities across the US, Europe and Asia are still trading near record highs. Confidence has been built on assumptions of rate cuts, stable oil prices, and easing inflation. Those assumptions are now vulnerable. The prospect of a broader military conflict—especially one involving the world’s largest economy—threatens to knock markets off balance.

Oil has already climbed nearly 9% since the initial Israeli strikes on Iran. That alone sends a clear signal. Energy traders are building in the possibility of deeper supply disruptions. If US forces join the offensive, that risk multiplies. Supply chains would be at risk. Shipping through the Strait of Hormuz could be affected. The effect on crude would likely be immediate and severe.

Higher oil prices feed directly into inflation expectations. After a long and painful stretch of monetary tightening, many central banks have just begun preparing to pivot. Those plans would stall. Rate cuts expected later this year would be pushed back, or possibly cancelled altogether, if energy costs spike again.

This matters for equity markets because so much of the recent rally is based on an expectation of easier policy ahead. Investors have leaned heavily into risk, chasing yield and growth stories on the belief that borrowing conditions will soon improve. If inflation returns, that narrative collapses. And with it, much of the positioning tied to it.

We are already seeing hints of a shift. The US dollar has strengthened modestly against safe-haven currencies like the yen and Swiss franc. Treasury yields have edged lower as capital moves into government bonds. None of this is extreme, but all of it reflects a market sensing that something is changing.

A direct US strike on Iran would remove all ambiguity. The market’s tolerance for risk would drop instantly. The initial reaction would likely hit tech stocks, high-beta names, and emerging market assets first. Liquidity would shrink. Volatility would surge. Many investors would step to the sidelines, awaiting clarity that may not come for days.

There’s also the issue of timing. Should US action occur suddenly—overnight or during a weekend—it would leave global markets scrambling to price in the consequences before trading resumes. That sort of blind repricing creates wider gaps and sharper drops.

None of this is about the long-term value of businesses or the global economy’s trajectory five years from now. It’s about near-term risk tolerance. The kind of rapid repricing triggered by geopolitics tends to override valuation logic. It pulls markets down in broad strokes.

What makes this situation particularly sensitive is how underprepared markets seem to be. Despite the headlines and military posturing, positioning remains optimistic. Risk appetite has returned. Rate-sensitive trades are back in fashion. Many investors appear to be assuming that the conflict will remain contained.

That assumption is weak. The Middle East remains highly interconnected. A move by the US opens the door to a wider confrontation, including proxy responses across multiple borders. Markets will struggle to measure the implications if those scenarios begin to unfold.

Even a limited US strike would likely bring airspace closures, shipping route disruptions, and the possibility of further retaliation. All of this increases complexity for supply chains, commodities, and corporate earnings. The most affected companies may not be the most obvious ones—but the reallocation of risk would be fast and indiscriminate at the start.

Investors should be using this moment to assess exposure. That doesn’t mean exiting markets entirely. But it does mean understanding where the pressure will come first, and how it could spread. Diversification, liquidity access, and contingency planning all become more important in periods of sudden geopolitical stress.

What’s unfolding is not just a regional military story—it’s a global market risk. If the United States escalates its involvement, the reaction will not be slow or orderly. It will come in a wave of de-risking that hits asset prices across regions and sectors.

Markets have recovered from shocks before. But the damage often comes from being unprepared when the first move hits. The cost of ignoring this risk is far greater than the cost of adjusting for it. Investors need to be alert now, not later.

When geopolitics meets stretched valuations and overconfidence, the result is rarely subtle. If Washington acts, markets will move—and they will move fast.