Oil prices advanced again on Tuesday following attacks on key energy infrastructure in the Middle East, while U.S. and European equities stabilized and Treasury yields moved higher. Investor sentiment remains fragile after tentative rebounds in Western markets yesterday and across Asian bourses today. The developments come as U.S. allies rejected a call from former President Trump to deploy naval escorts for tankers through the critical Strait of Hormuz, with markets also awaiting policy decisions from major global central banks this week.
At the time of writing, Dow Jones futures edged up 0.04%, while S&P 500 futures dipped 0.06% and Nasdaq futures declined 0.17%.
In Europe, the Stoxx 600 index registered modest gains, on track for its first consecutive two-day advance since the onset of hostilities. Germany's DAX index rose 0.3%, France's CAC 40 climbed 0.72%, and the UK's FTSE 100 added 0.84%.
Futures for the tech-heavy Nasdaq index fell 0.2% in pre-market trading. However, shares of Uber gained 2.2% pre-market after the ride-hailing platform, along with Nvidia, announced an expanded collaboration to launch a robotaxi fleet by the first half of 2027.
Brent crude oil surged 3.6%, approaching $104 per barrel, after Iran launched fresh attacks on energy facilities near the Persian Gulf. West Texas Intermediate crude also rose 3.6% to $91.70 per barrel. The Shah gas field in the UAE remained offline on Tuesday, while new attacks ignited a fire at the critical Fujairah oil export terminal, highlighting Tehran's ongoing disruption of regional energy transportation.
Global markets had found some relief yesterday, buoyed by a pullback in oil prices, hopes for improved shipping flows in the Gulf, and strength in U.S. tech shares driven by optimism around artificial intelligence. The S&P 500 closed 1% higher.
Earlier, Asian stocks followed suit with a rebound. The MSCI Asia Pacific ex-Japan broad index rose 1.1%, though it pared most of its early gains, while South Korea's KOSPI index advanced 1.6%. Upbeat commentary from Nvidia provided a lift to regional technology stocks.
"U.S. markets moved higher overnight, but futures indicate a potentially softer start this afternoon, with volatility firmly in the driver's seat," said Matt Britzman, Senior Equity Analyst at Hargreaves Lansdown.
European natural gas prices rose in early trading, with the benchmark Dutch TTF front-month contract up 2.2% to €52 per megawatt-hour. Analysts at Rystad Energy indicated that shipping traffic through the Strait of Hormuz is expected to remain at very low levels until early April, while LNG production from Qatar and the UAE is forecast to gradually return to full capacity in the second half of May.
Traders continue to monitor crude shipments through the Strait of Hormuz as the U.S.-Israel conflict with Iran persists. Rising oil prices are fueling inflation concerns ahead of upcoming meetings by the Federal Reserve and other major central banks. U.S. diesel prices have surpassed $5 per gallon for the first time since 2022.
"Our portfolio positioning continues to balance the short-term support from higher energy prices against the longer-term pressure that persistent inflation and slowing growth pose for broader risk assets," said Jeffrey Palma, Head of Multi-Asset Solutions at Cohen & Steers Inc. "We anticipate taking advantage of market mispricings."
Since the conflict began, oil prices have surged more than 40%, while the S&P 500 has declined approximately 3%. Recent developments show the UAE's Shah field has suspended operations, and an Iraqi oil field along with a UAE port have been targeted by drone and missile attacks.
Former U.S. President Trump reiterated his call for other nations to help secure the crucial waterway and threatened to expand strikes on Iranian oil infrastructure.
The central bank "super week" is underway. The Reserve Bank of Australia decided on its second rate hike this year on Tuesday, lifting the benchmark rate to 4.1% to counter renewed inflationary pressures. This sets the stage for the Fed's meeting on Wednesday, followed by the European Central Bank, Bank of England, and Bank of Japan on Thursday. These institutions are assessing the global economic impact of the Iran conflict, though markets widely expect them to hold policy steady.
Money market traders now largely anticipate just one Fed rate cut this year, down from previous expectations of two. The Bank of England is expected to stand pat, whereas markets had previously priced in two cuts. For the ECB, market expectations have shifted from betting on cuts in February to now pricing in the possibility of one or two rate hikes.
The Bank for International Settlements urged policymakers on Monday not to rush to react to the global energy price surge, calling it a classic case where supply shocks should be "looked through."
U.S. Treasury yields moved higher across the curve as traders weighed the inflationary impact of rising energy costs. The yield curve steepened, with long-term yields rising more than short-term rates. The 10-year yield increased 1 basis point to 4.23%, bringing its total rise since the conflict's onset to 26 basis points. The 2-year yield rose 1 basis point to 3.689%, while the 30-year yield climbed 3.2 basis points to 4.888%.
European government bonds strengthened, led by UK gilts. Major European currencies appreciated against the U.S. dollar.
"Equities are caught between a rock and a hard place due to the oil price spike," said Garfield Reynolds, Head of Bloomberg's MLIV Asia team. "If the conflict drives yields sustainably higher, stock markets will face further pressure."
"A significant portion of the risk repricing appears to have already occurred," said Mathias Heim, Chief Investment Officer at Bellecapital. "The more pertinent question now is what could lead to improvement next: signs of de-escalation, stabilized oil shipments, or simply the absence of further negative surprises."
The U.S. dollar was largely flat. The Dollar Index, which tracks the greenback against six major peers, was little changed at 99.75, after ending a four-day winning streak on Monday.
"The war has so far triggered a terms-of-trade shock, wider real rate differentials, and tighter financial conditions—all of which are dollar-positive," noted Danske Bank analyst Filip Andersson in a report. "We see very little chance of a rapid reversal in the dollar near-term."
"I would be surprised if the FOMC sends a strong policy signal regarding the war's impact," said Steve Englander, Global Head of G10 FX Research at Standard Chartered in New York. "The Fed simply cannot judge how long this conflict will last or determine whether the ultimate larger shock will be to economic activity or inflation."
Bitcoin extended its gains, hitting a one-month high for the second consecutive day. Data from LSEG showed Bitcoin up 0.2% at $74,414, after reaching an intraday high of $75,983. Analysts at IG suggested cryptocurrencies are gradually acquiring some safe-haven attributes. Since high oil prices do not directly impact crypto assets, they are finding support even as equities decline. Bitcoin has been steadily recovering after a significant decline in late 2025 and early 2026, though it remains well below its all-time high above $126,000 from October of last year.
Gold prices rebounded after four consecutive days of losses, but were still down more than 4% for the week, as persistently high energy prices have dampened expectations for further interest rate cuts. "Although the release of emergency oil reserves has helped curb the price surge, rising inflation risks have already reduced market expectations for Fed rate cuts," said Soojin Kim of MUFG. "Higher interest rates typically suppress the performance of non-yielding assets like gold."
Mark Zandi, Chief Economist at Moody's, stated that as long as the Strait of Hormuz remains effectively closed to tanker traffic, the U.S. economic outlook will continue to deteriorate, even though U.S. oil and gas production roughly matches consumption. Zandi believes that if the situation remains unchanged for several weeks, a U.S. recession will become unavoidable. Even before the Iran conflict began, Moody's machine-learning leading indicator showed a 49% probability of the U.S. entering a recession within the next 12 months. Zandi expects the next update of the model to show the recession probability reaching or exceeding 50%. Weak employment data is a primary reason for the worsening U.S. economic outlook, though Zandi noted that many other economic indicators have also softened in recent months.
Despite the oil price surge prompted by Middle East tensions leading traders to significantly scale back expectations for Fed rate cuts this year, Morgan Stanley maintains its forecast for the Fed to resume cutting rates in June, followed by another cut in September. In contrast, the CME FedWatch Tool indicates traders generally expect only one rate cut this year, pushed back to September instead of the first half of the year as previously anticipated. Morgan Stanley stated in a recent report that if oil prices remain between $125 and $150 per barrel for an extended period, it would significantly curb consumer spending and necessitate Fed support. Seth Carpenter, the bank's Global Chief Economist, said an oil-driven inflation spike is likely temporary, adding, "If the situation worsens enough to start impacting economic growth, over time this could actually push down underlying inflation trends, particularly core inflation."
Sam Stovall, Chief Investment Strategist at CFRA Research, indicated that although oil prices have soared following the Middle East conflict, energy market turmoil is unlikely to cause a major stock market crash. Equities have faced selling pressure amid growing concerns about exacerbated inflation, slowing growth, and a potential slide into "stagflation." Even so, the S&P 500's current decline from its late-January record high of 7,002 points remains less than 5%. If the index falls below the 5% threshold this week, it would have taken over 47 days since hitting its high, which is inconsistent with historical patterns. Stovall said that while investors should not rule out the risk of a larger decline, the fact that it took so long just to form an initial pullback sends a clear signal that a "significant" correction is quite possible, but the odds of a plunge into a major bear market are extremely low.
**Focus Stocks:** Airline stocks rose in pre-market trading: Delta Air Lines gained nearly 5%, American Airlines, Alaska Air, and United Airlines Holdings each rose over 3%, and Southwest Airlines added nearly 2%. Uber advanced over 2% pre-market on expanded collaboration with Nvidia in autonomous driving. Beyond Meat fell 4.7% pre-market after reporting preliminary Q4 revenue below expectations and delaying its annual report. NEBIUS dropped over 5% pre-market as it plans a convertible bond offering to fund data center construction. Lidar company AEye surged over 36% pre-market after reporting Q4 revenue that doubled both year-over-year and quarter-over-quarter. Lithium battery firm Microvast plunged over 23% pre-market following a Q4 revenue decline and a wider adjusted loss.
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