The U.S. operation “Epic Rage” in Iran is now in its sixth week, well beyond the three or four weeks initially promised. The deadlines have passed, but Tehran is not backing down. The Strait of Hormuz remains largely shut, and energy prices are still running at levels the global economy can’t comfortably absorb.
And yet, the markets are barely reacting.
The S&P 500, the Nasdaq, and the Dow Jones have fallen only 3.8%, 2.9%, and 4.5%, respectively, since March 28. Similarly, during the 1973 oil crisis, the markets did not react immediately. The real decline in the Dow Jones, which was then the leading U.S. index, did not begin until weeks after the oil embargo was imposed.
The difference between then and now is that fifty years ago, there was no way to sway investors’ moods instantly with a few words. Today, whenever the market starts looking shaky, there’s always a conveniently timed tweet or news story claiming that talks are going well and that the worst is over.
On the ground, however, nothing has changed — the Strait of Hormuz is still effectively closed.
As for how the economy is handling the situation, the data so far doesn’t show any dramatic shift. For example, JPMorgan’s Global Manufacturing PMI fell in March but still pointed to moderate growth in global production — around 1.5% annually. U.S. inflation data is expected later this week.
That said, the economic impact of events like this tends to show up slowly.
It takes time to affect business costs and household incomes, which is why central banks — despite their more hawkish tone — haven’t rushed to change monetary policies. If the conflict drags on, however, market sentiment could eventually shift, and the situation may begin to follow a more familiar crisis pattern.
To understand the risks, remember that about two-thirds of the world’s oil is used for transportation, and diesel is crucial for logistics, farming, and some industries. The Middle East isn’t just about oil — it also provides fertilizers, aluminum, sulfuric acid, and other important materials.
Oxford Economics warns that, in a worst-case scenario of a prolonged war, global inflation could jump to 7.7%, near the 2022 peak. Global growth in 2026 could slow to 1.4%, 1.2 points below expectations. The U.S. and most major economies could enter a recession, while China’s growth might drop to 3.4%.
We’re not there yet. But the longer this continues, the harder it becomes to avoid.