Wall Street up as Iran’s response to US strikes eases fears of energy disruption

Dubai: Wall Street investors took comfort in signs that Iran’s retaliatory missile strike, in response to US-led attacks, avoided disrupting global energy supply routes.

The S&P 500 and Dow Jones were up around 0.7% in midday trading on Monday, with investors breathing a sigh of relief after Iran’s missile attack on a US military base in Qatar appeared less severe than initially feared.

US markets are coming off a week where stock prices had jumped up and down on worries about the conflict potentially escalating.

Limited US market fallout

The US over the weekend joined Israel in targeting Iran’s nuclear facilities, prompting a retaliatory launch of six missiles from Tehran at the Al Udeid Air Base in Qatar. While tensions remain high, analysts said the strike spared key oil infrastructure, calming markets that had been bracing for a much stronger Iranian response.

Initial fears included the possibility of Iran attempting to shut down the Strait of Hormuz—a crucial shipping route through which around 20% of the world’s daily oil supply is transported. A move like that could have sent oil prices soaring and triggered a major sell-off in stocks.

Instead, oil prices dropped on Monday, and equity markets recovered some of last week’s losses, when trading was marked by swings due to geopolitical uncertainty.

Energy disruption still a concern

The biggest fear for markets remains a potential shock to oil supply. Iran is one of the world’s top crude producers, and any move that blocks oil traffic through the Strait of Hormuz could lead to spikes in fuel, transport, and commodity prices globally.

But several analysts believe that Iran is unlikely to close the waterway, given that it relies heavily on the strait to export its own oil—particularly to China—and needs the revenue. One US-based oil analyst cautioned, however, that “countries are not always rational actors,” and a more emotional or political decision from Tehran can't be ruled out.

Market still eye Fed, US inflation

Despite the relative calm on Wall Street, investors are still closely watching how oil price volatility could influence the US Federal Reserve’s interest rate decisions. A sustained rise in fuel costs could drive inflation higher, making it harder for the Fed to cut rates later this year.

So far, inflation in the US has remained largely within target, but a sudden energy shock could complicate the Fed’s cautious stance. The central bank has held off on rate cuts in 2025, after slashing rates late last year, waiting to assess how President Donald Trump’s tariffs and global conflicts may affect growth.

Global markets trade mixed

Outside the US, markets were more subdued. France’s CAC 40 slipped 0.7%, while Hong Kong’s Hang Seng Index rose by the same margin, reflecting investor uncertainty in Asia and Europe.

While hopes remain that the Israel-Iran conflict could be short-lived, markets will likely stay sensitive to any further military actions or disruption to key oil routes.