On Saturday, February 28, 2026, Operation Epic Fury began, one of the Middle East region’s most expansive military operations in decades. Markets around the globe have been digesting, repricing, and adjusting to the evolving military and diplomatic situation, as well as its implications for the global economy. This includes supply-and-demand concerns for key commodities, with crude oil and gold spiking higher, along with rising trade and geopolitical risks.
Often, as these situations unfold, the length of military campaigns tend to persist longer than initially anticipated. While the military phase may last weeks to months, the supply disruptions can last several months or even years longer. The previous oil shocks that include the OPEC embargo (1973-74), Iranian Revolution (1979-80), Iraq War (1990), Asian Demand Surge (2003-08), and the Ukraine War (2022), demonstrate that energy supply impediments or constraints, at best, linger only for months.
Investors’ realization of the likely duration of the Persian Gulf situation, along with the resulting market volatility, is a flashing red warning signal for the global economy. Much of the supply shock risk emanates from the Strait of Hormuz, a critical chokepoint which is restricting transport, through which roughly 20% of the world’s oil & natural gas supply passes.
An energy shock can trigger economic damage when supply becomes constrained. A shortage of supply beginning with spiking energy prices, which can act like a tax increase on consumers, likely reduces discretionary spending and slows retail demand. For businesses, higher input costs from oil and gas, if not passed on to consumers, can erode revenues and compress profit margins.
Weaker corporate profits may then lead to cost-cutting measures such as layoffs, particularly at a time when many jobs are already under threat of replacement from advancements in Artificial Intelligence automation. Job losses and the ensuing consumer spending entrenchment that would be prone to follow only exacerbate the destruction of demand, potentially amplifying a negative feedback spiral within and across economies.
Although the current turbulence may just be dawning, the oil shock waves seem to be rippling across a multitude of markets. Volatility is affecting the international equities, currency, and commodities markets, as well as U.S. debt instruments. It may still be too early to discern and determine just how deep an economic and market impact this emerging situation will have. However, there’s a meaningful possibility that a hawkish Federal Reserve will adopt a wait-and-see approach, potentially pausing further rate cuts if the upcoming inflation data prints are higher due to energy spikes.
As the old saying goes, “Red sky at morning, sailors take warning.” In times like these, a cautious course of navigation may be the wisest, at least until the skies begin to clear.
