What if the conflict with Iran doesn’t de-escalate?

Week four of U.S.–Iran tensions began with Trump delaying planned strikes on Iran’s energy infrastructure by five days, citing potential negotiations, something Tehran immediately denied. A day later, reports claimed Iran’s Supreme Leader was open to talks and a quick resolution, provided Iran’s conditions are met.

Now, although the initial news sparked market optimism, subsequent reports had little effect — oil, S&P 500 and Nasdaq futures, and even gold (XAUUSD) barely moved. This suggests that investors remain cautious amid conflicting reports and the Strait of Hormuz staying closed despite the alleged talks.

Let’s assume the conflict drags on. What happens then?

Central banks in developed countries — including the U.S., Canada, and the eurozone —  have already highlighted inflation risks stemming from the energy crisis, and markets are beginning to price in potential rate hikes. For gold, bonds, and highly indebted companies, this would be bad news.

As for the Persian Gulf, economies such as Kuwait, Qatar, and Bahrain could contract this year if oil and gas exports, a key pillar of their economies, are disrupted. Instability in the region could also trigger a flight of capital to Asia.

From a sector perspective, airlines are among the hardest hit, especially those with hubs in affected regions like Qatar and the UAE. Overall, carriers with limited fuel hedging could end up canceling flights, raising ticket prices, and taking a financial hit.

Cruise operators are also struggling with rising fuel costs, especially those without energy hedging.

Chemical companies, according to Fitch Ratings, are also vulnerable, facing higher input costs, supply chain disruptions, and weaker demand — all of which could put pressure on their credit ratings. Energy market volatility is hitting oil refiners in the Asia-Pacific, while North American oil and gas companies may actually benefit from higher prices.

Restaurants and the broader hospitality sector could come under pressure as consumer demand softens. Tighter financial conditions and slower global growth are raising credit risks across industries.

Overall, the International Energy Agency has warned that the consequences of this conflict could be worse than the oil shocks of the 1970s and even more severe than the gas crisis triggered by the Russia–Ukraine war.

The takeaway?

Persistently high energy prices amid an ongoing conflict could put systemic pressure on the global economy, driving inflation and slowing growth. That means diving headfirst into riskier assets might not be the smartest move. Even if the conflict ends soon, the impact of the past three weeks won’t just vanish overnight.