Iran war’s impact on oil, equities, bonds

As the war with Iran escalates, how are oil prices likely to be impacted?

Market recap

• Equity markets slumped this week as a number of factors have suddenly turned against market sentiment.
• The conflict in Iran has sent WTI oil prices above $90; the private-credit market is under deepening stress; and a very soft February payrolls report fanned concerns about the state of the U.S. job market.
• All in, the S&P 500 fell 2.0%, the TSX gave back 3.7%, and there were deeper declines spread across global markets.

Oil

The U.S.-led war with Iran has now been underway for more than a week, and in addition to near-constant air strikes by American and Israeli forces against Iranian targets, we have also seen Iranian forces strike back against U.S. bases and allies in the region, including Saudi Arabia, Qatar, and the United Arab Emirates. Importantly, the Strait of Hormuz, a critical shipping artery for oil and liquefied natural gas, has also been closed by the Iranian military.¹ Our main takeaway from the early days of the conflict is that it appears it could take longer to resolve than many had initially expected—U.S. President Trump himself stated last week that his administration’s timeline is four-to-five weeks but that it could go “far longer than that.”² If Iran escalates further, that timeline could be pushed out even more, and additional countries could be drawn into the conflict. In terms of oil, price increases will have ripple effects across the global economy. That said, it is important to remember that the U.S. is less dependent on Middle Eastern oil than it was a decade ago. Back then, the potential for a price shock may have given U.S. leadership some pause. Now, however, the impact of price increases and a potential resurgence in inflation do not appear to be rattling their commitment. (If anything, rhetoric from U.S. leaders like Secretary of Defense Pete Hegseth has been more belligerent than in previous conflicts.) Our evaluation is that oil prices are likely to remain elevated in the near term, at least through the end of March and maybe longer. Eventually, as the conflict de-escalates, they are likely to return to a level more in line with overall supply-and-demand dynamics, which have not significantly changed. This is not a secular trend, in our view—rather, it’s likely to be temporary in nature, so the best course may be to take some profits on your oil position if you’ve made an advantageous trade.

Bottom line: The fundamentals of the oil market have not changed, but it is nonetheless important to monitor developments in the conflict to see how long elevated prices may persist.

Equities

Does the war in the Middle East—and rising geopolitical conflict in general—strengthen (or weaken) the case for particular regions or sectors? We’ve been having meetings with our investment teams on this very topic. In general, we continue to believe in Equities, but geographic allocations may be affected in the near term. In particular, we’re bullish on Emerging Markets (EM)—though the Iran conflict is bad news for India and China. Their energy dependence means that they’re particularly sensitive to changes in oil prices, especially given India’s recent trade agreement with the United States, which stipulates that the world’s most populous nation will no longer buy oil from Russia. As a result of the war, EM indexes were down approximately 5% at one point last week, though returns remain positive for the year. In the longer term, our thesis is unchanged. However, we’ll be reviewing the situation to determine whether there are short-term tactical changes that need to be implemented, such as the addition of more hedges or opportunistic purchases of stocks that got hit particularly hard.

Bonds

Treasuries are traditionally viewed as a safe haven asset. But how should investors evaluate their current suitability for that role given the potential for inflation stemming from higher oil prices? Since the start of the Iran war, we have seen yields on U.S. Treasuries go up slightly, as one would expect. However, they haven’t soared, and our view is that any inflationary pressure will be temporary. The greater impact will likely be on the U.S. Federal Reserve (Fed)—we expect them to take a wait-and-see approach since their picture of the economy has now been muddied. If they had been considering an interest rate cut at their next meeting in April, they may not be any more. While bonds are continuing to perform in line with what we’d expect in this environment, we prefer gold as a defensive hedge.

Bottom line: We expect inflation concerns to be temporary, but they may be sufficient to delay the Fed’s next interest rate cut.

Positioning

For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Strapping in—not tapping out: Markets grind higher despite volatility .

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Originally Posted March 9, 2026 – Iran war’s impact on oil, equities, bonds