The two-month-old war in Iran is dramatically reshaping global asset performance, driving Brent crude oil up by 49% while US stocks climb to record highs. A Deutsche Bank analysis highlights these gains, which stand in stark contrast to underperforming European markets and a more than 10 percent drop in gold, defying the metal's traditional role as a safe haven in times of conflict.
"The divergence highlights a complex reaction to the conflict, where energy independence has become a primary driver of performance," according to the analysis by Jim Reid, a strategist at Deutsche Bank.
The cross-asset reaction has been severe. Brent crude futures have surged past $111 a barrel, while both gold and silver have fallen by double digits. In equity markets, the S&P 500 has reached new records, while in fixed income, the UK 10-year government bond yield has climbed by 74 basis points, reflecting broad inflation fears.
This unusual dynamic suggests that while investors are pricing in a significant energy shock, the prospect of sustained inflation is forcing a repricing of interest rate expectations that is currently overriding geopolitical fear. The market's direction now hinges on whether the conflict's inflationary effects force central banks into a more aggressive posture, even as diplomatic efforts to reopen the Strait of Hormuz appear to be stalled.
Oil Leads, But For How Long?
Oil has been the undisputed winner since the conflict began on February 28. The price of Brent crude, the international benchmark, has climbed 49% in two months, with prices gaining nearly 17% in the last week alone, according to Reuters. The surge is a direct consequence of the effective closure of the Strait of Hormuz, a critical chokepoint for global energy supplies. However, the Deutsche Bank report notes that six-month forward contracts for Brent are up a more modest 25%, indicating that "investors currently still define this energy price spike as a temporary shock."
Adding a new wrinkle to long-term supply dynamics, the United Arab Emirates announced Tuesday it would leave OPEC as of May 2026. Analysts see the move as a signal that the UAE, the cartel's third-largest producer, intends to ramp up production capacity freely once the current conflict subsides, potentially fragmenting the group's influence.
A Tale of Two Stock Markets
The war has created a clear divergence in global equity markets. As a net energy exporter, the United States has seen its major indices thrive. Both the S&P 500 and the Nasdaq have set fresh records, buoyed in part by a powerful rally in technology stocks earlier in April. In contrast, the Eurozone's greater dependence on energy imports has made its assets a significant underperformer, a trend exacerbated by a weakening euro.
The report also highlighted the surprising strength of South Korea's KOSPI index, which has registered a year-to-date total return of over 58% in local currency terms, making it another bright spot amid the geopolitical turmoil.
The Gold Conundrum
Perhaps the most significant anomaly in this conflict has been the poor performance of precious metals. Gold and silver have both declined by more than 10% since the war started, a move that runs counter to decades of precedent where geopolitical crises bolstered their appeal as safe havens.
Reid's analysis offers two explanations for this unusual behavior. First, both metals were trading near historical highs before the conflict, leaving them vulnerable to a pullback. Second, and more critically, the surge in energy prices has reignited inflation fears, leading markets to price in a more aggressive path for interest rate hikes from central banks. Because precious metals offer no yield, their appeal diminishes relative to bonds as real interest rates rise.
Global bond markets have sold off sharply in response to these pressures. In the last two months, the 10-year government bond yield has risen 74 basis points in the UK, 47 in France, 40 in the US, and 39 in Germany, reflecting a broad-based reassessment of inflation and fiscal risks.
This article is for informational purposes only and does not constitute investment advice.