Global markets are experiencing a significant shock wave, as tensions between the US and Iran have created ripples, resulting in oil price volatility. They created an environment of uncertainty, pushing investors to follow and analyze these markets amid sudden developments, and began reshaping economic forecasts for the near future.
If you are part of the market or simply observing how macro factors could shape global economies, it’s important to understand why oil and energy markets have been volatile.
The volatility rollercoaster
In the past week, oil prices have seen volatility similar to that of gold in 2025. It’s one of the most dramatic price swings in recent history. The conflict between the US and Iran has seen Brent oil prices surge past $119 per barrel. A widespread fear of global supply disruption drove it. And it was understandable, since over 20% of the global oil supply has come to a halt in the past 10 days.
Disruptions didn’t last long, as US President Donald Trump suggested that the military conflict was “very complete”, leading to Brent crude plummeting by $10 before rebounding by $11 within a two-hour window. Over the past couple of days, oil has traded between $85 and $90. On Wednesday, oil prices jumped back over $100 as markets became skeptical of the safety of oil passage.
Extreme intraday volatility highlights how sensitive energy markets are to political declarations, with investors remaining skeptical of narrative shifts and more responsive to real-time military updates.
Critical supply chains and the Strait of Hormuz
The primary driver of this immense market fear centers on the Strait of Hormuz. This narrow waterway serves as an artery for global energy and processes roughly one-fifth of the world’s daily oil supply. The threat of closure in this region dictates price spikes for several reasons.
Effectively blocking the strait traps millions of barrels of crude oil. Major producers have already reported reducing production over fears of direct strikes on their extraction plants. In Bahrain, Iran attacked fuel tanks, while in Saudi Arabia, the country intercepted drones that were headed towards oil fields. In the UAE, production was cut to prevent losses, which means the amount of crude oil on the market continues to drop.
The Gulf countries, which produced over 3.3 million bpd in 2025, have already reduced their capacity by 3 million bpd since the war started. Additionally, with Iran setting up sea mines and attacking commercial vessels transporting oil through the strait, it influences market fear and continues to drive up risk premiums.
Even with rumors that the US Navy and allies, such as France, are reportedly escorting vessels through the strait, it’s not yet clear whether this will add confidence to the market. Recent videos released by the US military show direct hits on Iranian mining vessels, which should help strengthen the protective narratives pushed by the US.
International responses and strategic reserves
To combat this severe disruption, global leaders and energy organizations are stepping in with aggressive countermeasures. The International Energy Agency (IEA) recently proposed releasing 400 million barrels of oil from strategic reserves. These coordinated efforts market the largest stockpile of arms in history to ease pressure on energy markets and hope for a faster escalation of the war.
Alongside the IEA’s collective action, independent moves like Japan’s strategic stockpile decisions further demonstrate how heavily major economies rely on reserve releases to calm volatile markets. These decisive actions aim to provide a temporary buffer against tightening supplies and reassure investors that global energy security remains a top priority.
The IEA has warned that the world is facing the largest “supply disruption in global oil markets,” an event that threatens to impact economies worldwide. The aviation industry is already experiencing sharp price increases, and countries are taking action to mitigate rising oil costs. European economies, which are highly dependent on oil imports, face an increased risk of recession due to these price hikes.
Future outlook for global markets
What does this persistent volatility mean for the broader economy and your specific investment strategy? A sustained rise in energy costs poses a direct threat to global economic stability. According to the IMF, every 10% increase in oil prices typically leads to a 0.4% rise in global inflation and a 0.15% reduction in economic growth.
As geopolitical developments continue, central banks may need to reassess their interest rate policies. Prolonged high energy costs will likely drive inflation and slow economic growth across the US and Europe—an outcome that has not yet been fully priced into the market.
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