The keys to the US attack on Iran and its impact on the markets
23 JUN, 2025
The recent US military attack on Iran's nuclear facilities has once again ignited geopolitical alarms in the financial markets. As investors digest the news and possible retaliations, volatility in oil prices increases, safe haven assets such as gold and Treasury bonds rebound, and global stock markets trade nervously for fear of a further escalation in the Middle East conflict.
In this scenario of increasing uncertainty, international fund managers analyze in this article the short and medium term economic implications, and the impact on global markets.
United States attacks Iran: impact on the markets
Gilles Moëc, Chief Economist at AXA IM
The crisis in the Middle East has intensified even further, with the direct involvement of the United States. In the short term, the market reaction will depend on the magnitude of Tehran's response. The first market signals on Sunday night pointed to a slight strengthening of the dollar. We want to look beyond this instinctive reaction and see if the pattern of last week is maintained, when US assets did not benefit from the usual safe haven behavior. This could be due, in part, to market concerns about the overall political stance of the United States.
In the short term, the magnitude of the market reaction to the US attack on Iranian nuclear facilities will depend on how far Iran decides to counterattack. We continue to believe that closing the Strait of Hormuz would be counterproductive for Iran: beyond the military response it would provoke, it would drastically reduce its financial capacity and strain its relationship with China, which largely depends on Gulf oil. In a rational calculation, Tehran should opt for caution.
From a purely macro-financial point of view, we will monitor in the coming days if there is any "safe haven" behavior in favor of the dollar and risk-free US assets. The initial reaction on Sunday night pointed to some strengthening of the dollar, to 1.1470 from Friday's close at 1.1522 (and another 8% surge in oil prices, just like after the first Israeli attacks), but we want to see how the market reacts in the coming days. In fact, last week we were surprised how, unlike previous episodes of tension in the Middle East, US Treasury bonds and the dollar did not rebound tangibly after the first Israeli attacks on Iran. If this repeats this week, it would suggest that the market is still very concerned about the general political stance of the US, especially in trade and fiscal matters.
Beyond the effect of a negative risk premium induced by policies, the rise in oil prices could also influence, which only marginally affects core inflation but increases the likelihood of a US economic slowdown later this year, which could be interpreted as an increase in the chances of the Fed resuming cuts, which would pressure the dollar.
Samy Chaar, Chief Economist and CIO Switzerland, Bank Lombard Odier
US attacks should have a limited impact on global macroeconomic prospects. Geopolitical tensions are high, but the conflict can remain contained. The economic repercussions largely depend on oil supplies and routes, but these would have to be disrupted to have a lasting effect.
Any Iranian retaliation, beyond the symbolic, against American assets in the region carries the risk of further escalation and could threaten the survival of the regime. Despite the Iranian parliament's vote to disrupt the Strait of Hormuz, carrying it out is complex and would undermine Iran's oil revenues, which mostly come from China. Iran also appears to be geopolitically isolated, as neither China nor Russia have indicated that a diplomatic red line has been crossed, and Tehran's regional allies are all severely weakened.
Market reactions support this assessment. Oil markets are, of course, the key variable. However, prices, which have risen slightly, already reflect a geopolitical risk premium, and supply-side risks seem relatively contained: OPEC+ has the capacity to offset a possible loss of Iranian production.
Equity markets have reacted in a measured way, government bond yields remain stable, while gold, considered a safe haven, has dropped slightly. VIX futures, a measure of the volatility of the U.S. stock market, have decreased slightly. Historical conflicts involving the U.S. in the region only offer limited clues about market developments and oil price risks. During the Gulf War, following Iraq's invasion of Kuwait in 1990, oil production was severely affected, causing a lasting shock in prices. However, market reactions at that time were prolonged, as the U.S. and its allies took many months to respond, rather than days.
In general, we see a limited impact on equity markets, unless a substantially higher risk to oil production emerges that creates a long-term impact on interest rates, which is not our base scenario at this time. We keep our investment strategy unchanged for now.
Tolerance or immunity?
Muzinich & Co
A school of thought to explain the lack of reaction in the markets, despite the escalation of geopolitical tensions, is that investors have developed a greater tolerance —or even a certain degree of immunity— to disturbances, given the frequency and variety of such disturbances in recent years.
Since 2020, the markets have had to weather COVID-19, the takeover of Afghanistan by the Taliban in 2021 (and the chaotic withdrawal of the United States), while in 2022 the Russian invasion of Ukraine occurred, the fiasco of the UK's mini-budget, the turbulence in China's real estate sector, along with a rise in global inflation that triggered aggressive rate hikes around the world.
More recently, in 2023, we saw the war between Israel and Hamas and the disruptions of maritime transport in the Red Sea, and a regional banking crisis in the United States, marked by the collapses of Silicon Valley Bank and Signature Bank. In 2024, the markets faced the collapse of Assad's Syria and renewed political uncertainty following Trump's re-election.
Taking a more quantitative approach with a longer time series dating back to 1939, the average drop in the S&P 500 during major geopolitical events is around 6.1%, and markets usually take 17 days to bottom out and then fully recover over the next 16 days. Historical examples that may be relevant today include the Cuban Missile Crisis (7 days to bottom out, 9 days to recover, 6.6% pullback), the impeachment of President Clinton (6 days to bottom out, 5 days to recover, 3.9% pullback) and Brexit (14 days to bottom out, 9 days to recover, 5.6% pullback).
A more detailed analysis of the data shows that the broader and longer market downturns and prolonged recovery periods usually occur when a geopolitical shock causes a supply disruption. A relevant historical parallel is the First Gulf War in 1990-91, when the Iraqi invasion of Kuwait removed a significant volume of oil exports from the market, leading to a much larger drop (15.9%), a deeper bottom reached in 50 days, and a slower recovery in 87 days.
Currently, however, this does not seem to be on the cards, as neither Iran nor Israel appear to be targeting critical energy infrastructures, while oil tanker transits through the critical Strait of Hormuz have largely remained stable.
An alternative line of thought, somewhat less conventional, is that President Trump and his improvised and unpredictable messages remain the focus, diverting investors' attention from central banks and international diplomats. Last week, President Trump indicated that he would give diplomacy a chance before deciding whether to attack Iran, saying he would make his decision within the next two weeks. Despite this claim, over the weekend the United States launched attacks on three nuclear sites in Iran.
In line with the fact that President Trump is the main show in town, perhaps the most underrated risk currently is the group of deadlines in early July, which include a diplomatic solution for Iran, the self-imposed July 4 deadline for final approval of the US tax bill, the expiration on July 8 of the 90-day deferral of reciprocal tariffs, and the expiration on July 9 of the EU's 50% tariff pardon.
It is never advisable to corner oneself with multiple difficult deadlines. Just like juggling too many balls at once, eventually, you are likely to drop one.
