Oil, Iran and China: What markets are really telling us about the Middle East tensions

The latest escalation involving Iran has once again placed the Middle East at the centre of global market attention. Oil prices reacted immediately, volatility picked up, and investors were reminded how quickly geopolitical risks can ripple through global markets.

Brent crude briefly spiked towards $140 per barrel range on fears of disruption around the Strait of Hormuz, a route that carries close to 20 percent of global oil supply. Yet the reaction did not last. Prices soon eased back toward 100 dollars, continuing a pattern that has become increasingly familiar.

Markets today are not ignoring geopolitical risk. They are processing it differently. Instead of sustained panic, there is a cycle of sharp reaction followed by quick stabilisation. This reflects a deeper shift in how global markets absorb shocks.

At the same time, the macroeconomic backdrop is playing an important role. China, the world’s largest crude importer, is showing signs of resilience, but also underlying weakness. This combination is shaping how energy markets respond to geopolitical stress.

From this evolving situation, four key economic lessons emerge.

Recent price action shows that markets are reacting quickly, but not overreacting. Oil prices spike on headlines, but those gains are often short-lived.

This reflects a more resilient system. Energy markets today are supported by diversified supply, strategic reserves and flexible production. These factors allow the system to absorb shocks without long-term disruption.

Evidence of this resilience can be seen beyond crude oil. Jet fuel prices in Europe, one of the epicentres of the current crisis, are down around 20% from the highs and back below the levels seen in 2022. This suggests that while tensions are influencing sentiment, they are not translating into sustained cost pressures across the energy complex.

The result is a market that remains sensitive to risk, but less vulnerable to prolonged dislocation.

The Strait of Hormuz continues to be one of the most critical chokepoints in the global energy system. Around one fifth of global oil flows pass through it daily, making it a focal point during any regional escalation.

Recent developments highlight both the risk and the resilience. While the mid-April US blockade and Iranian interferences brought transit through Hormuz back to a standstill, the days before it saw oil flows over 4 million barrels per day, or roughly around 2 million, excluding Iran. This shows how disruptions can occur, but also how quickly flows can resume.

The oil market remains in deficit, but closer to 5% than 10%. This is a crucial distinction. A larger deficit would likely have triggered a sustained price rally, while the current imbalance allows markets to adjust without prolonged pressure.

A full and extended disruption remains unlikely. Major global players, including producers and large importers in Asia, all have a strong economic incentive to keep oil flowing. This shared interest acts as a stabilising force even in periods of heightened tension.

China’s role in the global economy continues to be central, particularly for energy demand.

Chinese economic growth gained momentum in Q1, with real GDP expanding by 5.0% y/y, up from 4.5% in Q4 2025. The stronger-than-expected Q1 growth pushes up our 2026 growth forecast to 4.5%, from 4.3% previously.

This improvement has been driven by exports and industrial activity, particularly in manufacturing and high-tech sectors. As a result, China is helping to stabilise global demand at a time of geopolitical uncertainty.

However, the recovery is not broad-based. Consumer demand remains subdued and the property sector continues to face structural challenges. This limits China’s ability to drive a strong demand-led surge in oil prices.

In effect, China is acting as a stabiliser rather than a growth engine in the current environment.

Market behaviour during geopolitical crises tends to follow a familiar pattern. Prices react quickly, volatility rises, and then conditions stabilise as uncertainty begins to ease.

This environment creates opportunities, but primarily for short-term positioning. Long-term investment strategies are harder to build around unpredictable geopolitical developments.

Unless one holds a very clear medium-term view and is willing to act against extreme price moves, war remains a trader’s market for 90% of investors or more.

Even in the energy sector, recent price movements show that gains are difficult to sustain without a clear structural shift in supply or demand. This reinforces the idea that geopolitical events rarely translate into lasting investment trends.

The broader takeaway is that the global economy is becoming more adaptable to shocks. Energy systems are more flexible, supply chains are more diversified, and markets are quicker to adjust.

Geopolitical risks are not disappearing, but their impact is becoming more contained and more short-lived.

For investors, the message is increasingly clear. The focus is shifting from reacting to crises to understanding how markets absorb them.

In a world where disruptions are frequent, resilience is becoming the defining feature of global markets.

- Christian Gattiker, Sophie Altermatt, and Norbert Rucker are senior economists at Julius Baer.