Global stock markets retreated and oil prices climbed on Wednesday after renewed military exchanges between Iran and the United States heightened concerns about the economic consequences of a widening Middle East conflict, while investors awaited key U.S. inflation data that could shape the outlook for interest rates.
European and Asian equities fell as markets reacted to reports of fresh strikes between Washington and Tehran, ending a brief period of relative calm following a ceasefire agreement reached in April.
The pan-European STOXX 600 index dropped about 0.6 percent, while futures on major U.S. stock indexes pointed to losses of more than one percent when Wall Street opens.
Investor sentiment deteriorated further after U.S. President Donald Trump warned that Iran would “pay the price” for delaying negotiations, comments that added to concerns over the trajectory of the conflict.
Iran’s Revolutionary Guards said they had launched missile and drone attacks on U.S. military installations in Jordan, Kuwait and Bahrain in response to American strikes on Iranian targets near the Strait of Hormuz, one of the world’s most strategically important oil transit routes.
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The latest exchange marked one of the most serious flare-ups since the ceasefire and revived fears of a broader regional confrontation that could disrupt energy supplies and undermine global economic growth.
Markets have remained highly sensitive to developments in the Middle East because of the region’s central role in global oil production and shipping.
Oil prices rose as traders assessed the possibility of supply disruptions.
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Brent crude gained about 1.7 percent to trade near US$93 per barrel, while U.S. West Texas Intermediate crude rose around 1.5 percent to above US$89 per barrel.
Although prices remain below the peaks reached earlier in the conflict, analysts said the renewed hostilities have reintroduced a significant geopolitical risk premium into energy markets.
“Investors have become more familiar with the risks, but uncertainty remains over how long the conflict will continue and whether it could escalate further,” market analysts said.
Across Asia, shares also came under pressure. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.3 percent, while South Korea’s technology-heavy KOSPI index plunged 4.5 percent amid renewed selling in artificial intelligence-related stocks.
The decline followed losses on Wall Street on Tuesday, where concerns about elevated valuations in technology stocks, rising geopolitical tensions and expectations of tighter monetary policy weighed on investor appetite for risk.
The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge”, climbed to its highest intraday level since early April.
Attention is now turning to U.S. inflation data due later Wednesday, which economists expect will show consumer prices rose 4.2 percent in the 12 months to May, the fastest annual increase since April 2023.
The figures will be closely watched by policymakers at the Federal Reserve as they assess the inflationary impact of higher fuel and food prices linked to the conflict.
A stronger-than-expected U.S. employment report last week prompted investors to reduce expectations of interest rate cuts this year.
Financial markets are now increasingly pricing in the possibility of a quarter-point Federal Reserve rate hike by December, a sharp shift from earlier expectations that rates would be lowered before year-end.
Analysts warned that a stronger inflation reading could further complicate the Fed’s policy decisions.
At the same time, investors are monitoring developments in Europe, where the European Central Bank began a two-day monetary policy meeting.
Markets broadly expect the ECB to raise interest rates by 25 basis points as policymakers seek to contain inflation pressures driven partly by higher energy costs.
In currency markets, the euro traded near $1.16 while the British pound held around $1.34 against the dollar.
Japan’s yen remained close to 160 per dollar, a level that traders view as increasing the likelihood of intervention by Japanese authorities to support the currency.
With geopolitical tensions intensifying and inflation concerns resurfacing, investors face a difficult balancing act between assessing the risks of slowing growth and the prospect of higher interest rates across major economies.
