On trading floors, on the Monday following the weekend of Israeli-American strikes on February 28, one can easily imagine traders' screens lighting up in all directions, alerts flashing one after another, and traders discovering, almost hour by hour, that the conflict was taking on a new dimension. Strikes, retaliations, strategic sites hit... then suddenly, the scenario that everyone dreaded: the closure of the Strait of Hormuz, through which a significant portion of the world"s oil and gas transits. In the space of a few hours, oil prices soared, and panic spread accross the markets. From Asia to Europe and the US, major indices all tumbled into the red.
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The central driver is that the market is not just "pricing in" a war: it is "pricing in" a cost shock, and thus a redefinition of macroeconomic trajectories. First, energy. A lasting blockade of the Strait removes (or threatens to remove) a critical fraction of available supply and also disrupts refined products and gas. This is precisely the type of shock that macro models find particularly recessionary, because it acts as a tax on all production and transport costs. The Federal Reserve Bank of Dallas published a dedicated simulation: a closure removing nearly 20% of global oil supplies would slash global growth (annualized) by approximately 2.9% over the quarter in question — a level that helps explain the nervousness in equities.
Next, inflation and rates. When oil accelerates, expectations of rate cuts evaporate — sometimes there is even talk of hikes. In the United States, the Associated Press notes that the rise in crude oil prices "erases hope" for monetary easing in 2026 and is accompanied by a jump in yields — a cocktail typically unfavorable for equity valuations.
Finally, the microeconomics of the indices: in this regime, the market rewards direct energy winners but punishes "price-taker" sectors — those that suffer from energy costs without being able to pass them on immediately: industry, transport, chemicals, discretionary consumption. We have even seen selling in supposed safe-haven assets (gold, defense), because fund managers — seeking cash — first cut what has risen the most or what is most liquid.
Against this backdrop, most major stock indices have suffered. In the short term, it all boils down to one question: is the energy shock transitory or structural? The answer depends on a sequence of events that are difficult to "price" properly: the ceasefire timetable, the actual capacity to secure and reopen shipping routes, the state of infrastructure, and the credibility of announcements. In this regime, most investors are watching three dials above all else:
The first is oil (level and slope): as long as Brent remains sustainably above "inflationary" thresholds, pressure on central banks persists.
The second is the yield curve: if yields continue to tighten, the decline could spread from cyclicals to growth stocks, and the Nasdaq"s relative advantage will erode.
The third is the geography of flows: Asia and emerging markets, which combine energy dependence with exposure to international flows, remain particularly vulnerable as long as the Strait remains a systemic friction point.
Overall, markets are punishing where energy is most imported, where industry is most dominant, where the central bank must choose between inflation and recession, and where the stock market is most concentrated in sensitive sectors (semiconductors, automobiles, discretionary goods). And that is why, in the same shock, some indices lose 3% to 4%, while others drop nearly 10%: the war is common, but the economic structure — and the index structure — is not.
