The war in Iran has upended the early-year path of financial markets, with oil prices and fuel costs becoming key drivers of day-to-day volatility for investors in stocks, bonds and other rate-sensitive assets. The Associated Press said markets started the year with two months of muddling progress before attention shifted squarely to the duration of the Iran war and the extent to which it could increase inflation—an outlook that, in turn, affects expectations for Federal Reserve policy.
Oil prices surged quickly, reflecting investors’ changing views on whether the conflict would end soon or drag on. The AP reported that Brent crude—the benchmark for about three-quarters of global crude oil—rose from roughly $70 per barrel during an extended period when oil largely traded between $60 and $70, to a level above $100 for the first time since the summer of 2022, topping out at times at $119.
That jump in crude translated into higher costs at the pump. The AP reported that as February ended, drivers in many parts of the United States were paying under $3 for a gallon of gas, but that the nationwide average had topped $4 for the first time since 2022 as of Tuesday. Patrick De Haan, head of petroleum analysis at GasBuddy, said Americans were spending “hundreds of millions of dollars more on gasoline every day,” according to the AP.
The conflict also showed up in diesel prices, which matter for freight and delivery trucking. The AP reported that the average price of a gallon of diesel was $5.45, up from about $3.76 per gallon before the war began, citing AAA.
Within equities, the AP described a market backdrop that had been shaped earlier by worries about artificial intelligence spending and competition for investors’ attention, before that focus was replaced by Iran-war risk. The stock market’s overall performance in March came with sharp swings, and the AP said dramatic intraday moves in major indexes such as the S&P 500 have become common during the uncertainty.
Energy companies, in particular, benefited from the shift in market expectations around crude and natural gas exposure. The AP said energy stocks were among the best performers in the S&P 500 for both the month and the quarter, citing FactSet reporting on large quarterly gains for Exxon Mobil, as well as strength for Occidental Petroleum and Valero Energy.
In bonds, the AP reported a break from a typical pattern in which global shocks send investors toward safe-haven assets. Instead, it said expectations for a possible inflation spike linked to higher oil prices contributed to a sell-off in bonds and a jump in yields. According to the AP, the yield on the 10-year Treasury was 3.97% in late February and rose as high as 4.44% before falling back; that surge, the AP said, fed through to higher rates for mortgages and other loans, and traders saw only a slim chance the Federal Reserve would cut rates even once this year.
The AP framed the outlook going forward as difficult to predict because policy and diplomacy signals remain mixed. It said President Donald Trump has pivoted between suggesting an end to the war and threatening escalation aimed at Iran’s energy infrastructure, while Iranian leaders have downplayed claims of progress in diplomatic talks. The Associated Press also pointed to Iran’s hold on the Strait of Hormuz, noting that during peacetime a fifth of the world’s oil is transported through that waterway, and said analysts expect heightened volatility in oil and stock markets as long as that status quo remains.
Finally, the AP described the central constraint for investors: rate decisions at the Federal Reserve now face a tradeoff between supporting economic growth through cuts and fighting inflation pressures that could be intensified by energy-driven price increases. The result has been a market environment where hopes for a quicker end to the conflict have repeatedly risen and faded, and where both stocks and rates can swing sharply as those expectations shift.