Is the war ending soon? Investors are convinced it is

Dubai: Global markets have already moved ahead of the facts.

Investors are increasingly betting that the conflict between the US and Iran could end within weeks, a shift driven largely by comments from Donald Trump that the military campaign may be wrapped up in “two to three weeks.”

That expectation — not any confirmed breakthrough — is now shaping prices across oil, equities, and currencies.

Oil markets reacted first. Brent crude dropped sharply, falling about five percent to just under $99 a barrel, while US oil benchmark slid to around $97. The pullback followed an earlier surge that had pushed prices above $119 at the height of supply fears linked to disruptions in the Strait of Hormuz.

Stocks moved in tandem. European markets opened strongly, with Frankfurt and Paris rising more than two percent and London’s FTSE 100 gaining 1.7 percent. Wall Street had already set the tone a day earlier, with the S&P 500 jumping 2.9 percent overnight, its strongest session in months, while the Nasdaq surged 3.8 percent.

Asian markets extended the rally. South Korea’s Kospi soared as much as 8.4 percent, recovering earlier losses, while Japan’s Nikkei gained more than five percent. Gains were also recorded across Hong Kong, Shanghai, Australia, Taiwan and India, reflecting a broad re-risking move by global investors.

The scale and speed of the shift point to one thing: markets are pricing in a shorter war.

“Markets are, effectively, now trading a two or three week war scenario based on Trump’s latest comments,” said Nigel Green, chief executive of deVere Group. “Financial markets move in probabilities, not confirmed outcomes, and right now the probability of a shorter conflict is being aggressively priced in.”

Oil remains central to that recalibration. As crude prices retreat, expectations for inflation ease, reducing pressure on central banks to keep interest rates high. That dynamic is feeding directly into equity gains.

“The oil move is doing the heavy lifting,” Green said. “As crude drops, inflation expectations ease and rate pressure softens, which is why equities are responding so strongly.”

Yet the underlying risks have not disappeared.

The Strait of Hormuz — through which roughly a fifth of global oil supply typically flows — continues to face disruptions. US gasoline prices have already climbed above $4 a gallon for the first time since 2022, underscoring the real-world impact of supply constraints.

At the same time, signals from Washington remain mixed. Trump has suggested a near-term end to the campaign, while also warning that failure to reach a deal could trigger strikes on Iran’s key oil infrastructure. US Defense Secretary Pete Hegseth has described the next phase of the conflict as “decisive,” without ruling out further escalation.

That gap between rhetoric and reality is starting to show.

“There’s a real fatigue setting into markets,” said Steve Sosnick, chief strategist at Interactive Brokers. “Trump has tried to improve the mood through his comments. But at some point, the market is starting to really look for action, not words.”

Analysts say even a swift end to hostilities would not erase the economic effects already set in motion.

“De-escalation hopes have given markets a lift, but we think the effects of the war would, in many cases, persist even if the war did end soon,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics.

The recent volatility explains why investors are so quick to reposition. In March, oil prices surged nearly 50 percent, marking one of the sharpest monthly gains on record. Equities fell across major markets, with European indices posting their worst performances since the early days of the pandemic.

Bond yields climbed sharply as inflation expectations surged, while the US dollar strengthened as investors sought safety.

Economist Sylvain Bersinger described the shock as a “mini oil shock,” warning of stagflation risks — a combination of rising prices and slowing growth that is difficult for policymakers to manage.

Now, sentiment has flipped just as quickly.

Markets that were braced for escalation only days ago are now positioning for a more supportive backdrop, driven by easing oil prices and the prospect of lower inflation.

But that optimism rests on a single, unconfirmed assumption.

“This rally is built on a defined timeline that hasn’t been confirmed,” Green warned. “If that timeline slips or the situation deteriorates, markets will have to reprice just as quickly.”

For now, investors are watching the same signals: developments in the Strait of Hormuz, diplomatic progress between Washington and Tehran, and any shift in tone from policymakers.

Until there is clear evidence of de-escalation, the current rally remains vulnerable — driven less by resolution on the ground than by expectations of one.