Global financial markets are now entering a high-risk phase as geopolitical tensions rise again, with the latest development from the White House confirming that President Donald Trump will make a decision within two weeks on whether the United States will join Israel in military action against Iran.
This situation adds further uncertainty to a global economic landscape already struggling with stubborn inflation, a US Federal Reserve (Fed) policy that tends to raise interest rates, and central banks around the world that are increasingly cautious. Although global crude oil prices have fallen slightly, market sentiment has not yet fully subsided.
Trump's Decision on Iran Adds Geopolitical Pressure
Markets are now awaiting a key decision from President Trump who is considering direct military involvement in the Israel-Iran conflict. Currently, Israeli air strikes on Iranian nuclear facilities are still ongoing and the risk of US intervention is no longer just speculation.
While global markets are not yet fully ‘All in’ on this worst-case scenario, market activity and capital flows to safe havens suggest investors are increasingly prepared for the worst. Should the US formally join military action, a surge in geopolitical risks could occur immediately, with major repercussions for global oil, currency and equity markets.
Oil Prices Remain High, Risk of Surge Still Open
Brent crude oil prices fell 2% on Friday but remain high, with warnings that if the conflict escalates into a full-scale war, oil prices could surge to as high as USD130 to USD150 per barrel. This could trigger a major inflationary shock and force central banks to make difficult decisions between controlling prices and saving economic growth.
The main focus: the Strait of Hormuz, a vital waterway that carries almost 20% of global oil supplies. Any disruption here could trigger a supply crunch and ripple effects across global energy and transport markets.
Fed Remains Cautious, But Still Hawkish
The latest projections from the US Federal Reserve show that they are increasingly uncomfortable with stubborn inflation, even though growth expectations for 2025 have been lowered. The Fed still expects two rate cuts this year, but Chairman Jerome Powell stressed that any policy changes depend entirely on economic data and geopolitical developments.
Signal from the Fed: If energy prices continue to rise and push inflation higher, rate cuts may be delayed until 2026, especially if government fiscal policy remains loose and trade tariffs continue to contribute to supply disruptions.
SARACEN MARKETS Outlook
The current geopolitical direction suggests that risks that could have a major impact are seen approaching. The combination of monetary policy uncertainty, persistent inflation and the risk of war makes the investment landscape this time very challenging. If the US does indeed join the attack on Iran, this scenario would be a major turning point in the direction of the market, whether in terms of oil prices, inflation rates or the direction of economic policy this year.
