Two months after the US-Israel war with Iran began on February 28, the human and fiscal costs are already substantial. The death toll in Iran alone is estimated at between 3,000 and 6,000, while the US military campaign has cost about $25 billion so far, according to the Pentagon’s first official estimate. The economic costs, however, have extended far beyond the battlefield, rippling through oil prices, stock markets, bond yields and currencies. Here is a look at the war's impact so far on global financial markets and the economy.
Oil spikes as truce hopes fade
Brent crude futures rose almost immediately after the conflict began, climbing from $72.29 a barrel on February 27, a day before the war started, to above $100 by mid-March. Prices cooled in April as ceasefire hopes briefly returned, easing to around $90 by mid-April. That relief has since reversed, with US-Iran peace talks stalling and fears of prolonged disruption around the Strait of Hormuz resurfacing.
Markets split on war impact
Equity markets have not reacted uniformly to the war. The Sensex is down more than 5% from February 27, while the UK’s FTSE 100 and Germany’s DAX have also lost around 5%, reflecting the pressure on oil-importing economies and Europe’s sensitivity to energy costs. European markets have come under renewed pressure as Brent’s latest surge revived inflation and growth worries. The US has held up better, with the S&P 500 still above its pre-war level, helped by hopes of a ceasefire earlier in April and resilience in technology stocks. South Korea has done even better, with the KOSPI boosted by a semiconductor-led tech rally.
{{/usCountry}}Equity markets have not reacted uniformly to the war. The Sensex is down more than 5% from February 27, while the UK’s FTSE 100 and Germany’s DAX have also lost around 5%, reflecting the pressure on oil-importing economies and Europe’s sensitivity to energy costs. European markets have come under renewed pressure as Brent’s latest surge revived inflation and growth worries. The US has held up better, with the S&P 500 still above its pre-war level, helped by hopes of a ceasefire earlier in April and resilience in technology stocks. South Korea has done even better, with the KOSPI boosted by a semiconductor-led tech rally.
{{/usCountry}}Oil shock rattles bond markets
The war’s second-order impact is visible in bond markets. Higher oil prices have revived inflation expectations, reducing the room for central banks to cut rates quickly. The US Federal Reserve kept rates unchanged on Wednesday in a divided vote, with inflation concerns from the Iran conflict weighing on the outlook. Borrowing costs have risen across major economies since February 27, led by the UK, where 10-year gilt yields are up 73 basis points. The US, Germany, Japan and India have also seen 10-year yields rise by around 38-44 basis points.
India feels direct crude pain
India’s exposure is more direct because it imports more than 85% of its crude oil requirement. Higher oil prices have therefore fed quickly into external-sector pressure, with refiners’ dollar demand adding to the strain on the rupee. The rupee weakened from 91.08 per dollar on February 27 to around 95 per dollar on Thursday. The equity hit has also been uneven. This reflects how investors have punished rate-sensitive and oil-linked domestic demand sectors such as banks, autos and financial services, while metals have gained from global supply concerns and pharma and healthcare have benefited from their defensive character.