Global markets are entering the week with a mixture of resilience and uncertainty, as traders balance a robust risk appetite against renewed geopolitical tensions, particularly involving the U.S. and Iran. Over the weekend, President Donald Trump canceled plans to send his envoy Steve Witkoff and Jared Kushner to Islamabad for discussions with Iranian officials, citing internal discord within Tehran’s leadership.
Despite this setback in diplomatic efforts, Iran has proposed a new plan aimed at reopening the critically important Strait of Hormuz and resolving ongoing conflicts, according to a report by Axios that cited U.S. officials familiar with the situation. The proposal includes deferring discussions on nuclear issues. Iran’s Foreign Minister Abbas Araghchi was re-engaged in talks in Islamabad, further signaling that diplomatic channels are still open. However, Trump indicated that conversations might shift to a phone format instead of in-person meetings. Following his brief stint in Islamabad, Araghchi departed for Moscow, indicating a potential expansion of discussions.
Amid these geopolitical uncertainties, oil prices experienced an uptick on Monday. The international benchmark Brent oil futures increased by approximately 1%, reaching $106.55 per barrel, while U.S. crude oil prices rose by 0.88% to settle at $95.23 per barrel. Goldman Sachs has adjusted its forecast for oil prices, predicting that Brent will average $90 per barrel by late 2026, up from a previous estimate of $80. The bank notes that disruptions in the Persian Gulf are likely to persist longer than initially expected, with global inventories falling at a record pace of between 11 million and 12 million barrels per day in April due to delayed normalization of Gulf exports.
Investment strategist Billy Leung from Global X ETFs remarked that the potential for extreme market events, often referred to as “fat tails,” remains a significant concern. Even if oil flows through the Strait of Hormuz resume, the delayed recovery in production and depleted inventories hint at ongoing supply constraints. Invesco anticipates that $80 per barrel will serve as a baseline price for Brent this year unless full normalization occurs in supply routes.
The economic impact of protracted disruptions in the Strait is also a topic of concern, as rising oil prices could lead to demand destruction, particularly in energy-importing regions.
Despite these challenges, equity markets have demonstrated remarkable resilience, recovering from initial losses triggered by the ongoing conflict in the region. Analysts attribute this robustness to a dynamic interplay between geopolitical risks and strong structural drivers, notably advancements in artificial intelligence. “Equities are balancing two opposing forces: the geopolitical left tails and the AI commercialization right tail,” Leung stated, noting that the latter is currently benefiting the market.
However, some market experts caution that momentum appears to be excessive. “While the primary trend remains upward, caution is advised as the current sentiment seems overly stretched,” Leung remarked.
Others, like Rajat Bhattacharya, a senior investment strategist at Standard Chartered, see market volatility as an opportunity. He predicts that potential near-term fluctuations could create favorable conditions for investors to add risk assets to their portfolios, particularly with expectations of a deal that could restore oil flows within weeks.
Looking at historical analogs, Ed Yardeni, economist and president of Yardeni Research, noted that markets have historically rebounded quickly following supply shocks. He referenced the 1956 Suez Crisis, where oil prices doubled and stocks initially fell but eventually rose to new highs once the canal reopened.
In Asia-Pacific markets, stock indices displayed positive momentum, with Japan’s Nikkei 225 and South Korea’s Kospi achieving record highs. U.S. stock futures also appeared stable, indicating limited market fallout from recent geopolitical events. Government bond markets remained steady, with the yield on the 10-year U.S. Treasury increasing by 1 basis point to 4.322%, and Japan’s government bond yield rising more than 2 basis points to 2.463%.
Beyond oil, the broader commodities market is beginning to reflect more extensive and persistent disruptions affecting natural gas and food supply chains. Leung noted that liquefied natural gas (LNG) prices are running significantly above pre-war levels, exacerbated by constraints in global LNG supply.
The repercussions of rising natural gas prices are proving to be significant; they directly impact fertilizer production and agricultural costs, raising concerns about a delayed rise in food prices. Invesco also pointed out that supply disruptions are affecting other goods, including helium, aluminum, and sulfur, which could introduce additional inflationary pressures across various industrial supply chains.
Central banks, however, appear inclined to overlook these shocks for the time being. “The bull market remains intact, but the balance between genuine technological growth and an unresolved energy crisis continues to be at play,” Leung concluded.
