Oil has topped $110 a barrel. Stock markets from Tokyo to London are posting their worst losses in years. And one of Wall Street’s largest banks just warned that American investors are not prepared for what may be coming next.
The war between the United States, Israel, and Iran, which began on February 28, has moved fast. Faster than most markets were prepared for.
By Monday morning, Japan’s Nikkei had plunged 5.2%. South Korea’s market fell 6%. Germany, France, and Britain all dropped between 2% and 2.7%. In the United States, futures for the S&P 500, Dow, and Nasdaq were all down more than 1% before the opening bell. The Dow alone shed as many as 945 points on Friday before closing down 453. The only major market to finish in positive territory was Norway, one of the world’s largest oil exporters.
The ripple effects are already hitting individual companies. UPS stock tumbled nearly 5% as surging fuel costs threatened to compress margins across the shipping and logistics industry. Airlines, manufacturers, and retailers that depend on affordable energy are facing the same reckoning.
JPMorgan Turns Bearish. Wall Street May Not Be Ready.
Earlier last week, JPMorgan was still describing the Iran conflict as a likely buying opportunity. By Monday, that view had changed significantly.
Andrew Tyler, JPMorgan’s head of global market intelligence, turned “tactically bearish” on U.S. stocks as the conflict showed no signs of abating. His warning was pointed: investors are not positioned for what this could become. Options pricing implies the S&P 500 could drop another 2.9% this week alone, and the bank warned the war could ultimately push the benchmark index down 10% from its most recent peak, to roughly 6,270.
Tyler noted that market positioning remains largely neutral, with little extreme de-risking. Last week, energy stocks were actually net sold as traders anticipated de-escalation that never came. Many investors may not yet fully grasp what a prolonged conflict means for their portfolios.
JPMorgan said it would only reverse its bearish call with a “definitive off-ramp to the conflict.” For now, it sees none. Morgan Stanley’s chief investment officer Mike Wilson offered a somewhat more measured view, writing that the bank remains constructive on stocks over the next six to twelve months and believes markets are closer to the end of their rolling correction than the beginning. But he acknowledged that the pace of oil price increases will determine how long volatility persists.
It Starts With Oil
At the center of everything is the Strait of Hormuz, the narrow waterway that carries roughly one-fifth of the world’s oil supply. Since the conflict began, it has effectively closed to most exports, and the consequences are compounding daily.
West Texas Intermediate crude surged 36% in a single week, its biggest weekly rise since the contract launched in 1983. Brent crude crossed $106 a barrel on Monday. Crude is now nearly 50% higher than it was before February 28. Several Gulf oil producers have already begun curbing output due to capacity and shipping constraints.
JPMorgan’s commodities desk warned clients that “every single day of blockage through the strait creates exponentially larger problems for products down the road,” and that the bank sees prices approaching $120 a barrel. It also drew a direct comparison to the aftermath of Russia’s Ukraine invasion, noting it took nearly five months for oil to fall back under $100 from its peak of $125. The G7 is now discussing whether to release strategic oil reserves to stabilize markets, with France’s finance minister publicly floating the option. Investors expecting a quick resolution to the current energy shock may be significantly underestimating what they are dealing with.
A Policy Trap With No Clean Exit
On Friday, the U.S. jobs report showed the economy lost 92,000 jobs last month, with inflation already running at 3%. That combination has put the Federal Reserve in a genuinely difficult position.
Cutting interest rates to support a weakening economy risks re-igniting inflation. Holding rates steady risks deepening the slowdown. Bond markets are already reflecting the tension, with the yield on the 10-year U.S. Treasury spiking above 4.2% before pulling back, a sign that investors are pricing in both inflation risk and economic uncertainty simultaneously.
The Wall Street Journal called this potentially “the most severe energy crisis since the 1970s,” and the historical comparison carries real weight. In 1973, when OPEC banned oil exports to the United States, the S&P 500 ultimately fell 44% over 11.5 months. The economy sank into a prolonged stagflation that took nearly a decade to unwind. Nine decades of market data consistently show that oil supply disruptions are the one geopolitical trigger most likely to produce lasting economic damage. Most wars and crises create short-term volatility that eventually recovers. Energy shocks are different.
The Diplomatic Fallout Could Hit U.S. Markets Directly
Beyond the oil shock, a less visible but potentially significant threat is emerging from America’s Gulf allies.
Saudi Arabia, the UAE, and Qatar had collectively pledged hundreds of billions of dollars in U.S. investment commitments. According to the Financial Times, advisors to Gulf governments are now quietly signaling those pledges may be subject to review. One Gulf official indicated the reassessment could affect anything from investment commitments and sovereign wealth fund activity to contracts with U.S. businesses and sales of existing holdings. That prospect has reportedly caught the White House’s attention.
Qatar’s energy minister Saad al-Kaabi framed the broader stakes plainly: “This will bring down the economies of the world. If this war continues for a few weeks, GDP growth around the world will be impacted. Everybody’s energy price is going to go higher. There will be shortages of some products and there will be a chain reaction of factories that cannot supply.”
The warning carries weight precisely because the Gulf states are themselves deeply exposed. Iran’s arsenal of drones and missiles gives it the capability to strike refineries and desalination plants across neighboring countries, infrastructure that millions depend on for drinking water. What began as a regional military conflict is rapidly becoming a global economic one.
What This Means for Everyday Investors
For Americans watching their retirement accounts, the implications stretch well beyond the daily headlines.
Many 401(k) and IRA portfolios remain heavily concentrated in equities. JPMorgan’s warning that most investors have not yet de-risked suggests the adjustment, if it comes, may still lie ahead. Historically, the S&P 500 has been higher 65% of the time one year after major geopolitical events since World War II, but the average return during those periods was just 3%, well below normal. Bear markets have historically resolved in around 286 days on average, and the bull markets that follow have typically lasted 3.5 times longer. That long-term perspective matters.
But it has to be weighed against the specific nature of this moment. The combination of an active oil shock, a weakening labor market, rising inflation, volatile bond yields, and a Federal Reserve without a clean path forward is not a routine geopolitical event. It is, as history shows, the particular set of conditions that has produced the most lasting economic damage.
For Americans in or near retirement, rising costs don’t get offset by rising wages. They draw directly from savings. That is what is at stake right now, not just in the headlines, but in the numbers that matter most to ordinary households.
Sources:
- Will the Iran War Cause a Stock Market Crash? Nine Decades of History Weigh In.
- JPMorgan says the S&P 500 could tumble 10% into a correction if the Iran war rages on
- World shares tumble as Iran war pushes crude prices over $110 a barrel
- Stock Market ‘Meltdown’ Risks Are Surging Due to Stagflation: Ed Yardeni – Business Insider
