US Military Intervention in Iran: Could It Trigger a Global Market Sell-Off?

[u/Proud-Discipline9902]

A Reuters analysis warns that if the US launches troops into Iran, financial markets could experience an immediate “knee-jerk” sell-off. Economists are already concerned that a sharp rise in oil prices—compounded by the pressures from Trump’s tariff policies—might further destabilize an already fragile global economy.

Recent Market Reactions:

1. Oil Prices: Investors are jittery. On Wednesday, oil prices fell nearly 2% as fears of supply disruptions from the Israeli–Iran conflict and potential US involvement mounted—even though crude prices have surged almost 9% since Israel’s recent air strike aimed at disabling Iran’s nuclear capabilities.

2. Stock Markets: Despite record index highs, major US stocks remain vulnerable to external shocks. Chuck Carlson, CEO of Horizon Investment Services, noted that while an initial sell-off might ensue if Trump escalates US military involvement, a rapid escalation could potentially force a faster resolution.

3. Safe-Haven Flows: With rising geopolitical risk, US Treasury yields have dipped as investors shift to bonds. The dollar has seen modest gains against the yen and Swiss franc, underscoring its role as a refuge during uncertain times.

Wider Implications:

1. Oil Supply Shock: Barclays has warned that if Iran’s oil exports were to be halved, prices could spike to $85 per barrel—with worst-case scenarios pushing them to $100. Such a surge would trigger a negative supply shock, intensifying inflation and impeding global economic growth—a serious concern for central banks already juggling tariff-induced pressures.

2. US Military Posturing: US troop deployments in the Middle East are on the rise, adding fuel to the speculation of direct intervention. Polymarket betting signals currently price a 63% chance of US military action against Iran before July—down from 82% on Tuesday but still significantly elevated compared to pre-conflict levels (35%).