Oil Price Surge Creates Winners and Losers in Global Markets

Three months into the Iran war, global markets have split into clear winners and losers. Oil prices have skyrocketed by nearly 40%, causing policymakers to worry about renewed inflation fears and interest rate hikes.

The physical market has seen crude prices surge above $100 a barrel, with one point reaching nearly double pre-war levels. A record 400-million-barrel release from major economies' strategic reserves, combined with traders finding alternative sources, have helped cushion the loss of supply, but strain on the global energy system is growing.

Global stocks have weathered the storm so far, thanks to renewed AI optimism and hopes for a peace deal. U.S. stocks are at record highs, as is South Korea's Kospi. European shares are nudging all-time highs, with SK Hynix topping $1 trillion in market value for the first time on Wednesday.

The dollar has also been a winner, with investors embracing its safe-haven properties and it gaining 1.5% against other major currencies since the war began. However, U.S. policy uncertainty will likely weaken the dollar when the conflict ends, according to Russell Investments' global head of solutions strategy Van Luu.

Asian currencies have been hit hard by the oil price surge, with India's rupee, Indonesia's rupiah, and the Philippine peso hitting record lows against the dollar. Countries like Sri Lanka have hiked rates or tapped FX reserves to ease the pain, while China's yuan has held up due to substantial domestic energy reserves.

The war's impact is amplifying Europe's financial vulnerabilities, with the European Central Bank warning of a report on Wednesday. British companies have reported a drop in activity alongside a jump in input prices due to higher energy costs.