It’s been a chaotic month in markets since the U.S. and Israel attacked Iran on Feb. 28, prompting a surge in oil prices.
The Dow Jones Industrial Average fell into a correction Friday for the first time since President Trump’s “liberation day” tariff tumult nearly a year ago. It joined the Nasdaq Composite and Russell 2000 indexes in correction territory, defined as a close that’s at least 10% below a recent peak.
“The problem is we are not believing the cease-fire news, collectively,” Mike Hackett, chief market strategist at Nationwide, told MarketWatch on Friday. What’s more, retail investors now appear to be joining institutional players on the sidelines, he said, pointing to weekly fund flows.
“For the last four weeks, we’ve been playing around with the idea that we will get a resolution [to the conflict], and we will get a rally,” Hackett said. “That’s starting to fade in terms of hope.”
Wall Street has been counting on a brief conflict that sees crude-oil prices quickly settle comfortably below $100 a barrel. The idea is that oil around $90 still would cost Americans more at the gas pump, but it wouldn’t necessarily ruin their finances or the U.S. economy.
The problem is Iran’s grip on the Strait of Hormuz — which gives it sway over not only global crude flows, but also fertilizer supplies ahead of the planting season as well as helium, a crucial component of the semiconductor industry and the artificial-intelligence buildout.
“Even if the strait were to effectively open tomorrow, you can’t turn the faucet back on,” said Angie Gildea, global head of oil and gas at KPMG. “With wells shut in and damage to natural-gas infrastructure, we’ll have longer-lasting impacts that will prop up the price of oil for at least a few months to come.”
Global benchmark Brent crude’s front-month May contract settled at $112.57 a barrel on Friday, the highest since July 2022 — up 55% in March so far, according to Dow Jones Market Data. U.S. West Texas Intermediate crude for May delivery ended Friday at $99.64 a barrel, up nearly 49% month to date.
“We are crossing all sorts of tipping points in the Middle East,” said Mohamed El-Erian, chief economic adviser at Allianz, in a Fox Business interview Friday. “Damage to energy infrastructure is real, and that means that this war will have an impact.”
The core issue is not just production but also the security of key transit routes, said Antonio Di Giacomo, senior market analyst at XS.com. “Even with temporary diplomatic efforts and delayed military timelines, the structural risk to supply chains and shipping flows has not meaningfully diminished,” he noted.
Since the start of the war, the oil market has moved from “pricing potential disruption to pricing an ongoing and tangible supply shock,” Di Giacomo told MarketWatch by email.
Fears of another inflation surge have been hammering the $20 trillion Treasury market, where yields have bolted higher and auctions in the past week have been met with poor demand.
Market tumult on Friday tacked another 13% onto the Cboe Volatility Index, also known as the VIX or Wall Street’s “fear gauge.” That pushed the VIX above 31 heading into the weekend. It’s been well above its long-term average of 20 during the month of March.
The oil shock already can be felt close to home, with higher gas prices at the pump leaving American consumers feeling pretty pessimistic. The U.S. economy was in a vulnerable state before the war and will experience further deterioration in coming months, said Brian Bethune, an economist at Boston College.
“There is a high probability we’ll have a negative second quarter” in terms of economic growth, Bethune said. The economy should eke out a 1.5% growth rate in the first quarter, but will start the April-June quarter “on really bad footing.”
“That doesn’t spell recession,” Bethune added, noting that would depend on the duration of the war. But many households already dipped into their savings to keep spending in the second half of last year, helping to keep the economy growing, he said.
Now, consumers have decided to rebuild their depleted savings early in 2026, and that means less spending, Bethune said.
That means getting oil, gas and goods flowing back through the Strait of Hormuz will be crucial to the U.S. economy. The market needs “clear evidence that energy infrastructure is secure, shipping routes are fully operational and the risk of renewed disruptions has significantly declined,” Di Giacomo at XS.com said.