Iran Conflict Moves Gold and Oil Markets

Trump may be chasing a quick success in Iran similar to what happened in Venezuela, but the objectives remain unclear beyond broad terms such as regime change. The war with Iran is spreading across the Gulf region. The Strait of Hormuz has been closed, oil prices are rising, filling up for less than €2 per liter appears to be a thing of the past, and stock markets are turning red. The gold price reached a peak of over €148,600 per kilogram on Monday, only to correct sharply the following day. What lies behind all these movements?

Strait of Hormuz

One fifth of the world’s oil production is transported through the Strait of Hormuz. This narrow sea corridor is the gateway to the Gulf states and runs along the Iranian coast. Any blockade of the strait would have enormous consequences for global oil and gas trade.

Overview of oil and gas fields and infrastructure around the Persian Gulf, source: Bloomberg

Since the airstrikes by Israel and the United States on Iran last Saturday, developments have been unfolding rapidly. The successful airstrike on Iran’s Supreme Leader Khamenei made global headlines. With the “head” of the snake gone, as many commentators described it, it was far from certain what would follow. Although the Iranian people appeared to welcome the death of the tyrant, the current regime, the Revolutionary Guard, and the military all have a strong interest in preserving the status quo. A fight to the end may therefore be unavoidable. Missile attacks from Iran on American bases in the Gulf region, Israel, and even Cyprus followed.

Overview of airstrikes between Israel and the U.S. on the one hand and Iran (and its proxies such as Hezbollah) on the other. Source: Bloomberg

Initially, Iran did not appear to be planning to close the Strait of Hormuz. Nevertheless, several tankers were attacked and the threat alone was enough for insurers and shipping companies to turn their tankers around, away from the potential danger. On Monday came the report that Iran would definitively close the strait and set any ship attempting to pass through it ablaze. Despite Trump’s announcement on Wednesday that the U.S. Navy would escort tankers, few shipping companies are willing to send their vessels back through the strait.

Oil prices surge

International markets reacted strongly to the news from the Gulf region. Oil prices jumped between 8% and 11% on Monday (for WTI and Brent respectively) and have not yet retreated from these elevated levels. LNG gas prices rose by 50% that same day after Qatar halted production following attacks on energy facilities. Despite the largest price increases in years, the current developments pale in comparison to the price spikes shortly after the Russian invasion of Ukraine.

Gas and oil prices (from futures contracts on the energy market) since 2022; the reaction to the invasion of Ukraine still stands out. Source: Bloomberg.

However, the reactions on stock markets are significant. South Korea’s KOSPI fell 12% in a single day on Wednesday, the largest drop in its 46-year history. U.S. stock markets plunged sharply after the weekend and have only partially recovered since. The reactions in both oil prices and equity markets are unmistakable, but not yet as large as one might expect. Markets still appear uncertain about the impact the conflict with Iran will ultimately have and how long it will actually last.

The S&P 500 plunged sharply at the opening after the weekend and recovered slightly, source: Tradingview

Gold prices

The gold price rose sharply on Monday as investors fled to safe havens such as precious metals and the dollar. Due to the decline of the euro and the rise in the gold price, gold reached a peak of over €148,600 per kilogram. Many Holland Gold customers made the same move: during the weekend of the attack, sales reached more than a week’s typical turnover. Customers are buying gold and silver in the expectation that geopolitical tensions will push prices even higher.

The gold price peaked during the early trading hours from March 1 to March 2 and corrected sharply later on Tuesday.

After markets had processed the initial geopolitical shock, the realization set in that a high oil price also implies higher inflation. Production and transportation costs rise worldwide when oil prices are high, putting pressure on margins. This affects industry and potentially also the more volatile silver market, which only began to recover on Wednesday. These inflation fears also mean that central banks, in their effort to curb inflation, may cut interest rates more slowly than previously expected. That in turn is negative for gold, as the gold price had already priced in rapid rate cuts.

Nevertheless, the gold price is recovering again and continues on the path that could make 2026 one of the best-performing years for gold. Gold is currently 21% higher than on January 1 of this year. Silver, despite its greater price volatility, is currently also 22% higher than at the start of the year.

The silver price moved less strongly than the gold price and also declined more quickly.

What comes next?

How the situation in Iran will develop remains unclear. Analysts are scrambling to outline various risks and scenarios. The economic impact of the conflict is closely linked to the oil price, which will be most affected by whether or not the Strait of Hormuz reopens and whether Iran will attack additional gas and oil facilities. The geopolitical consequences for the region are still uncertain.

Four scenarios for the war in the Middle East, source: Bloomberg

An important factor in all of this is that the United States will likely experience the least impact from rising oil prices. Thanks to large-scale shale oil and gas production, the U.S. has transformed in recent years from an energy importer into an energy exporter. The U.S., together with its renewed connection with Venezuela, is therefore far less dependent on fuels from the Gulf states. From that perspective, there is less pressure on Trump to bring the conflict to a swift end. It is primarily Asia and Europe that may suffer the largest economic consequences. Trump has indicated that the U.S. expects the war with Iran to last about four to five weeks. We are currently on day five.

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On behalf of Holland Gold, Paul Buitink and Yael Potjer interview various economists and macroeconomic experts. The goal of the podcast is to provide viewers with a clearer understanding and guidance in an increasingly fast-changing macroeconomic and monetary landscape. Click here to subscribe.