As oil price volatility eased, selling pressure in global equity markets slightly moderated, though concerns over an escalation of the Iran war continue to weigh on sentiment. The MSCI All Country World Index fell about 0.3%, while Brent crude traded around $100 per barrel after a sharp rally the previous day. Investors are also assessing measures taken by the administration of Donald Trump to curb energy prices, including the release of strategic reserves and a temporary waiver allowing purchases of Russian oil. However, Iran’s threat to keep the Strait of Hormuz closed has heightened fears of global supply disruptions, prompting markets to remain cautious about inflation risks and the future policy path of the Federal Reserve.

According to a Bloomberg survey, many economists expect the European Central Bank to keep interest rates unchanged at least until 2027, while markets continue to price in the possibility of rate hikes this year. The disagreement largely stems from uncertainty about the duration of the Iran war and its impact on energy prices and inflation. Policymakers led by Christine Lagarde remain alert to the risk of another inflation shock following the surge in energy costs but prefer to wait and assess the real economic impact of the conflict and potential disruptions in the Strait of Hormuz. Most economists still believe that if inflation intensifies again, the ECB’s next move would more likely be a rate hike rather than a cut.

The conflict between the United States and Iran has prompted major global central banks, including the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England, to approach monetary policy decisions more cautiously this week. Rising oil prices have increased concerns about a new inflation shock, weakening market expectations for interest-rate cuts, particularly in the US. Meanwhile, investors are now even pricing in the possibility of interest-rate hikes in Europe and the UK later this year.

The US strike on military targets on Kharg Island has raised concerns in oil markets, as the island handles roughly 90% of Iran’s crude oil exports. Trump said oil infrastructure was intentionally spared but warned that it could become a target if Iran disrupts shipping through the Strait of Hormuz. Analysts say any serious damage to the Kharg export terminal could disrupt Iran’s oil exports and push global oil prices even higher.