Middle East Conflict Sends Shockwaves Through Global Financial Markets

The six-month conflict in the Middle East has sent shockwaves through global financial markets, causing disruptions to energy supplies and impacting various asset classes.

Oil prices have skyrocketed due to Gulf production being disrupted and shipments through the Strait of Hormuz curtailed. Brent crude briefly topped $120 in April and now averages about $90, up from roughly $70 last year.

The impact on refined fuels has been significant, with diesel prices rising sharply amid shortages of middle distillates. Jet fuel was initially hit hard due to the Gulf's importance, but a surge in US refinery output and exports helped ease supply fears.

Global stocks have largely shrugged off the war, buoyed by trillions of dollars pouring into the AI sector. MSCI's world stocks index has gained almost $7 trillion, or 9%, since the conflict began. Analyst Pranav Aggarwal said investors are taking a 'relaxed view' and still expect the war to end this year.

The dollar has risen 1.4% against a basket of major currencies since the war began, while US Treasuries have lost 3.5% on total return basis due to higher inflation and concerns about new Federal Reserve chief Kevin Warsh.