U.S. President Donald Trump’s decision to extend a ceasefire with Iran has eased fears of renewed military escalation, but financial markets are increasingly treating the conflict as a secondary risk, even as oil prices remain elevated due to disruptions in the Strait of Hormuz.
The White House said on Tuesday that the ceasefire extension would allow additional time for negotiations, effectively delaying the expiration of an earlier two-week truce. The move came amid ongoing diplomatic efforts involving regional intermediaries, though talks remain fragile and inconclusive.
Despite the geopolitical uncertainty, global markets reacted with relative calm. Asian equities traded mixed, European indices posted modest gains and U.S. futures pointed slightly higher, suggesting investors were already adjusting positions ahead of the announcement.
Oil markets, however, remained sensitive. Brent crude hovered near $100 a barrel while West Texas Intermediate traded close to $90, reflecting continued concern over restricted supply routes and tight inventories linked to tensions around the Strait of Hormuz.
The strait — a critical passage through which a large share of global oil exports flows — remains a focal point of supply risk, with shipping constraints contributing to sustained price pressure.
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Analysts said markets appear to be moving past worst-case geopolitical scenarios, even as the underlying conflict remains unresolved and physical supply disruptions continue.
“What the market is really doing is trying to look past what’s going on in Iran,” said Brian Stutland of Equity Armor Investments, noting that investors are increasingly focused on broader macro and earnings fundamentals.
The shift has been reflected in equity performance, with global indices recovering earlier losses triggered by the outbreak of hostilities. The MSCI World Index, for example, has rebounded above levels seen before the conflict began, as investors unwind some geopolitical risk hedges.
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Investment strategists say this reflects a familiar pattern in which markets initially react sharply to geopolitical shocks but gradually refocus on earnings, liquidity conditions and monetary policy expectations.
Ray Farris of Eastspring Investments said markets were pricing out extreme tail risks, including scenarios involving severe oil supply shocks. “Markets perceive that the worst-case scenarios in this war are probably over,” he said.
However, commodity analysts warn that prolonged disruption in the Strait of Hormuz could still tighten global inventories. Daan Struyven of Goldman Sachs said sustained constraints on flows would gradually drain stockpiles, limiting the system’s ability to absorb further shocks.
“The longer this lasts, the more global inventories draw,” he said, adding that policymakers have limited control over the duration of the disruption.
Despite short-term market stability, energy prices remain significantly higher than pre-conflict levels, contributing to inflationary pressure across importing economies and complicating central bank policy decisions.
Investors are now shifting attention toward corporate earnings, with upcoming results expected to test whether companies can absorb higher input costs without significant margin erosion.
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J.P. Morgan Private Bank’s Grace Peters said valuations had improved enough to attract renewed interest, particularly as earnings expectations stabilise. Others noted that geopolitical shocks have historically had limited long-term impact on equities unless they directly affect global economic output.
Still, uncertainty over the ceasefire’s durability remains. Diplomatic efforts involving further talks have been delayed, and analysts caution that any breakdown in negotiations could quickly reintroduce volatility into energy and currency markets.
For now, however, the dominant market narrative is one of cautious normalisation — with investors weighing persistent oil supply constraints against a belief that escalation risks may have peaked, at least temporarily.
