US strikes on Iran and the potential closure of the Strait of Hormuz will not only rattle global energy markets – the impact of the conflict will be felt across asset classes with global stocks likely to suffer bouts of intense volatility, according to Lombard Odier.
The Swiss private bank says prolonged conflict between the two arch rivals could severely disrupt oil flows and will drive inflationary concerns as energy risks spill over into the global economy.
“While the impact of geopolitical tensions on financial markets is often limited or transitory, in this case oil markets create a direct link to the global economy and broader supply chains,” Nannette Hechler-Fayd’herbe, chief investment officer for Europe Middle East and Africa, said in research note.
Tensions are simmering, with fears of renewed conflict despite the continuing nuclear talks between Tehran and Washington.
The US has warned that it could attack Iran if a deal is not reached. It has significantly ramped up its naval deployments in the Middle East, including by sending the USS Abraham Lincoln aircraft carrier group to within striking distance of Iran.
US Vice President JD Vance said on Tuesday that progress had been made in the talks with Iran but that “certain red lines” remain as Tehran keeps up its tough rhetoric towards Washington.
On Wednesday, White House press secretary Karoline Leavitt said President Donald Trump's preference was for a diplomatic solution to defuse the crisis that has left the region on the brink of another conflict, but added that “there's many reasons and arguments that one could make for a strike against Iran”.
The US military could be ready as soon as Saturday to launch strikes on Iran, according to American media reports.
Recipe for disaster
Lombard Odier is considering two risk scenarios: the first involving US strikes but with no lasting disruption, and the second resulting in a major Iranian response, including prolonged disruption to the Strait of Hormuz, which could rattle global energy and financial markets.
The Swiss bank estimates that a temporary spike in oil prices to $100 per barrel – or beyond – is plausible and global LNG prices would also be affected if Iran moves to block the strait.
However, any Iranian action in the waterway would be a “high-risk, high-cost option for Iran itself because it would shut down its own oil exports, removing the regime’s primary source of income, and negatively affecting economies in Asia and the Middle East”, Ms Hechler-Fayd’herbe said.
Economic impact
The Strait of Hormuz is a major route for shipping in the Middle East, particularly for tankers carrying oil around the world. Structurally, it remains one of the world’s most critical chokepoints. The channel, about 33km wide at its narrowest point, flows between Oman and Iran. It links the region's crude oil producers with other key markets, making it vital to the global energy supply.
About 20 million barrels of crude oil and petroleum products- or 27 per cent of global maritime oil trade – travelled through the channel in 2024, according to the US Energy Information Administration.
Despite threats, the politically sensitive strait has never been closed by Iran. Saudi Arabia, the world’s largest exporter of crude, moves more hydrocarbons through the waterway than any other country in the Gulf.
Iran currently accounts for around 4 per cent of global crude supplies, most of which is destined for Asian markets. Although sanctions have significantly weakened Iran’s oil output, Opec estimated its production at around 3.5 million barrels per day in 2025, with China as its largest customer.
“We estimate that a sustained 20 per cent to 30 per cent increase in crude oil prices would depress global growth by between 0.5 per cent and 1 per cent,” Ms Hechler-Fayd’herbe said.
“That would raise global headline consumer price inflation by a similar margin.”
Although the 1970s oil embargo triggered a deep recession, the global economy is now far less oil-dependent, and the US has shifted from being a major oil importer to the world’s largest producer, she added.
Market reaction
The stakes of escalation would be high for both the US and Iran. Although Iran is significantly weakened economically and appears to be fragile after the recent mass protests, it has vowed to strike US and its allies across the region.
Lombard Odier's base case scenario, however, remains a negotiated outcome rather than an all-out war that would have significant domestic consequences for Mr Trump before US midterm elections in November.
“This scenario is also in line with financial markets’ calmness so far,” Ms Hechler-Fayd’herbe said.
“The VIX, an index of US equity market volatility, remains just below its long-term average levels, and there is no sign that risk premia – the excess returns demanded by investors for holding a riskier asset – are adjusting in anticipation of an escalation.”
In the worst-case scenario, market reactions would include a rise in commodity prices including gold, and more volatile equity markets, as the energy sector adjusts.
“We would also expect strong demand for haven assets, and government bond yield curves to steepen as inflation expectations rise and central banks assess the prospect of slower economic growth,” Ms Hechler-Fayd’herbe said.
In such an event, the Swiss franc and Japanese yen, both traditional haven currencies, would appreciate.
“The longer-term market reactions would depend on the length and the severity of a crisis,” she added.
