Iran war erupts in late February, sending oil soaring and shutting the Strait of Hormuz

Global markets were upended at the start of March as the war between Iran on one side and the United States and Israel on the other, which erupted on February 28, sent oil prices soaring and triggered the closure of the Strait of Hormuz, the world's most important energy chokepoint. What began as a weekend military operation rapidly became a full-blown energy shock, setting in motion the supply disruption and inflation surge that would dominate the global economy for months to come.

The conflict was launched on Saturday, February 28, with a coordinated US-Israeli campaign of air and maritime strikes against Iranian nuclear, military and leadership targets. The assault was reported to have killed several senior Iranian figures, including the country's longtime supreme leader, throwing Tehran's command structure into disarray and prompting a fragmented but aggressive retaliation. Because the strikes fell on a weekend when oil was not trading, the market's full reaction was delayed until the following sessions.

When trading resumed, the response was immediate. Brent crude, which had settled at $71.32 a barrel on February 27, jumped about 8% to $77.24 by March 2, and continued climbing as the scale of the disruption became clear. Over the course of March, Brent would surge roughly 51%, one of the largest one-month gains on record, eventually approaching $120 a barrel at its peak. The catalyst was Iran's move to weaponize the Strait of Hormuz: in the early days of March, the Islamic Revolutionary Guard Corps declared the waterway unsafe for international commerce, effectively halting traffic through a passage that normally carries around a fifth of the world's oil and a large share of its liquefied natural gas.

The consequences rippled out with extraordinary speed. With Gulf exports stranded, fuel shortages and rationing emerged in parts of Asia that depend heavily on crude shipped through the strait, and the global oil market confronted what the International Energy Agency described as the gravest energy security challenge in its history. Some producers, notably Saudi Arabia and the UAE, were able to redirect a portion of their barrels through alternative pipelines, but a vast shortfall remained, marking the largest supply disruption ever recorded.

Washington moved quickly to contain the fallout. On March 3, President Trump announced that he had ordered the provision of political risk insurance for all maritime trade and signaled that the US Navy stood ready to escort commercial vessels through the strait if necessary. The measures underscored the gravity of the situation, but they did little to immediately restore the flow of oil, and the war premium embedded in crude prices only grew as the standoff hardened.

Financial markets reacted with a violent shift toward safety. Equities sold off sharply as investors fled growth-oriented technology shares in favor of defensive sectors and energy producers, volatility gauges spiked, and the swings on Wall Street grew extreme. The combination of surging energy costs and tumbling stocks revived a word that had largely faded from the market lexicon: stagflation, the toxic mix of stagnating growth and accelerating inflation that policymakers most fear.

For central banks, the shock landed at the worst possible moment. Inflation had been drifting back toward target across much of the developed world, and the sudden spike in energy prices threatened to reverse that progress, complicating the path toward the rate cuts markets had anticipated. The early-March surge in crude foreshadowed the inflation reports that would later confirm the damage, as higher fuel costs began working their way through supply chains.

The opening days of the war established the template for everything that followed. The fate of the Strait of Hormuz became the single most important variable for global energy prices, and by extension for inflation, growth and monetary policy. As March began, traders, policymakers and households alike were left to grapple with a conflict that had, almost overnight, transformed the economic outlook and injected profound uncertainty into markets around the world. The energy shock that defined 2026 had begun.