US-Iran Tensions Spark Global Market Volatility

The recent US-Iran tensions have sent shockwaves through global markets, with oil prices spiking as a result of the conflict. The Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea, is a critical waterway for oil exports and has been targeted in the attacks.

Brent crude oil has already risen by 20% this year, trading at around $73 per barrel on Friday. Analysts predict that even if the conflict remains contained, Brent prices could reach as high as $80 per barrel. A prolonged conflict affecting supply could cause oil prices to jump to around $100 per barrel, potentially adding 0.6-0.7 percentage points to global inflation.

The VIX volatility index has risen by a third this year, and implied U.S. bond volatility is up 15%. Currency markets are also expected to be affected, with the dollar index falling by around 1% during the June war. However, this fall was short-lived and unwound after three or four days.