Uncertainty surrounding control over the Strait of Hormuz continued to drive oil prices in varying directions, as safe passage for oil transport vessels was challenged throughout July. The uncertainty sparked heightened market volatility and dramatic oil price swings. The outcome of the war hinges on the Strait of Hormuz and the resumption of the flow of oil transversing through the waterway.
Resurfacing hostilities between Iran and the U.S. heightened tensions and rattled markets during the early days of July. A faltering peace agreement between the U.S. and Iran has become a critical indicator of where oil and energy prices might be headed. Crude oil prices saw the largest quarterly drop since 2020 following the announcement of the initial peace accord, with West Texas Intermediate (WTI) falling to $69.50 per barrel in June from $112.95 in April.
The conflict with Iran and how long the hostilities may linger have become a significant concern for markets. Analysts and economists are not as concerned with immediate effects of the war, but are much more concerned as to the longer term complications for the economy and consumers. A prolonged duration of the conflict could provoke slowing economic conditions brought about by the elevated cost of diesel and gasoline.
Economic growth increased in the first quarter primarily driven by continued massive investment in artificial intelligence by major technology companies. Concurrently, consumer sentiment weighed on expenditures as the Middle East conflict stirred uneasiness and uncertainty among consumers.
The Middle East conflict has brought about the largest ever disruption of oil supplies globally, inhibiting the delivery of oil and natural gas to countries all over the world. The Strait of Hormuz, and what control Iran could continue to have over the Strait, has become the primary determining factor in the outcome of the war
The most significant effects of the Middle East conflict imposed on the U.S. financial markets have been heightened inflationary fears, brought upon by elevated oil and gasoline prices, and rising Treasury yields. International markets have been more affected by the conflict in the Middle East than have U.S. markets. As the world’s largest oil and natural gas producer, the United States has emerged as the world’s leading energy provider, whereas other countries have become increasingly reliant on U.S. oil and natural gas.
The beginning of the trading year in the financial markets exhibited volatility and uncertainty surrounding the Federal Reserve’s stance on inflation, implication of new tariffs, and a sudden sell off in Japanese government bonds. International trade and commerce focused on the dollar’s direction and how markets would react to a change in global currency dynamics.
Pronounced uncertainty throughout 2025 created volatile trading sessions as labor market concerns and lingering inflation kept the Fed from lowering rates to the extent that had been expected. Regardless, both equity and fixed income markets rose throughout the year, driven by consistent earnings and optimism surrounding massive investment and capital expenditures related to Artificial Intelligence (AI).
A lack of government data detailing employment and inflation metrics continued to be of concern in November, as markets relied more on private sector entities to replace absent government data.
The Federal Reserve announced a rate reduction of a quarter point on the Fed Funds Rate in late October, yet is casting doubt on further rate cuts this year. Concerns surrounding underlying inflation are focal to the Fed as well as a weakening jobs market with increasing layoffs across various industries.
The Fed’s decision to ease rates in September may be perceived as a method to alleviate a slowing economy, not entirely a response to diminishing inflation. Markets carefully follow Federal Reserve decisions as a signal of where the economy is expected to head. Labor market data and economic releases provided by the federal government, which the Federal Reserve and economists rely on, are coming under escalating scrutiny. There is an increasing reliance on labor market data compiled by private companies, not the government, as credibility with the Bureau of Labor Statistics has progressively deteriorated.
Weakening employment data prompted the Federal Reserve to suggest that a reduction in interest rates would be considered sooner rather than later. The Federal Reserve is becoming increasingly concerned about the health of the employment market, enticing it to possibly lower rates more proactively in order to curtail an economic pullback.
