How the renewed US–Iran conflict shook global and European markets

Summary

Global and European stock markets experienced a volatile July, driven mainly by renewed tensions between the US and Iran following the breakdown of the ceasefire. Each stage of the conflict, including the end of the ceasefire, the return of a US naval blockade on Iranian shipping, and attacks on oil tankers in the Red Sea, created fresh market uncertainty and pushed energy prices higher. European markets were particularly affected due to the region’s reliance on imported energy, with the Stoxx Europe 600, Germany’s DAX, and France’s CAC 40 experiencing sharp movements during key moments of the conflict. (Sources: Bloomberg, Reuters, CNBC)

This update explains what happened, how global and European markets reacted, and what independent analysts are currently saying about the possible impact on markets. It is a summary of publicly available information and not a forecast or investment recommendation.

What happened in July, a timeline

8 July

President Trump announced that the ceasefire with Iran had ended, citing renewed attacks. US equity markets reacted immediately, with the Nasdaq and S&P 500 declining between 1% and 1.6%, while oil prices rose as investors priced in the risk of further escalation. (Sources: Bloomberg, Al Jazeera)

13 July

The US reinstated a naval blockade on Iranian vessels travelling through the Strait of Hormuz and introduced a new 20% fee on shipping companies using the route. Brent crude surged by almost 9% in a single trading session. The Nasdaq fell 1.55%, the S&P 500 declined 0.79%, and energy stocks outperformed the broader market. (Sources: Bloomberg, CNBC, TheStreet)

22–24 July

Houthi forces in Yemen, backed by Iran, attacked two Saudi Arabian oil tankers in the Red Sea, pushing oil prices above $100 per barrel for the first time since May. During the same period, President Trump suggested that a significant military response against Iran was under consideration. US equity markets weakened further, with disappointing earnings from Alphabet and Tesla adding to investor concerns. (Sources: CNBC, Reuters)

Late July

Reuters reported that Pakistan, reportedly acting on China’s suggestion, was exploring the possibility of facilitating renewed discussions between the US and Iran. Markets briefly recovered on hopes of diplomacy before reversing those gains as tensions resurfaced, highlighting how strongly investor sentiment has been influenced by geopolitical developments throughout the month. (Source: Reuters)

Market impact, a quick look at the numbers

Throughout July, markets followed a consistent pattern. Equities declined whenever geopolitical tensions intensified and stabilised or recovered when there were signs of diplomacy or de-escalation. Oil prices remained the primary channel through which geopolitical developments affected financial markets. (Sources: Bloomberg, CNBC)

Gold and US government bonds, assets that investors typically favour during periods of uncertainty, did not behave as expected this month. Gold prices eased slightly through mid-July, while the yield on the 10-year US Treasury rose instead of falling, suggesting that concerns about oil-driven inflation outweighed the usual flight to safe-haven assets. (Sources: Bloomberg, CNBC)

The view from Europe

European equity markets followed a similar pattern to US markets throughout July, with sharp movements driven by developments in the US-Iran conflict. However, Europe experienced additional pressure due to its reliance on imported energy and the European Central Bank’s approach to managing inflation and interest rates. (Sources: Bloomberg, XTB)

Mid-July

After Washington cancelled a waiver that had previously allowed Iran to export oil, European markets came under pressure. The Stoxx Europe 600 declined by around 0.6%, Germany’s DAX fell approximately 1%, and France’s CAC 40 dropped 0.9% as oil prices moved closer to $76 per barrel. Eurozone bond yields also increased, reflecting concerns that higher energy costs could keep inflation elevated for longer. (Sources: Bloomberg, XTB)

23 July

The Stoxx Europe 600 recorded its sharpest daily decline in more than two weeks, falling 1.3%. The decline came as rising oil prices combined with more cautious comments from European Central Bank President Christine Lagarde. Although the ECB kept interest rates unchanged during the meeting, investors interpreted Lagarde’s comments as leaving the possibility of a September rate increase open, which differed from earlier expectations of further rate cuts. (Sources: Reuters, Bloomberg)

Which sectors moved

Energy companies were among the strongest performers as rising oil prices supported oil and gas stocks. In contrast, airlines, travel companies, banks, and other interest-rate-sensitive sectors faced greater pressure as bond yields increased. Insurance companies remained relatively resilient during earlier stages of the conflict, partly supported by higher returns from their bond holdings. (Sources: Bloomberg, Reuters)

For investors in the eurozone, the bigger story this month may not be the share price swings themselves, but the combination of higher energy-driven inflation and a less relaxed ECB. This raises the chance that Europe faces higher interest rates for longer than markets expected at the start of summer. (Sources: Reuters, XTB)

What analysts are saying

The points below are based on publicly available comments and research from banks and investment firms. They are included for background information only, and do not represent this firm’s own forecast or personal investment advice.

US Bank

US Bank’s asset management research team has noted that during earlier stages of the conflict, equity markets experienced sharp declines following negative developments but later recovered as investors shifted their focus back towards company earnings. Their view is that recent market declines appear to reflect short-term volatility rather than a broader economic deterioration, provided corporate earnings remain resilient. (Source: US Bank)

Charles Schwab

Charles Schwab’s mid-year outlook takes a more cautious approach. The firm highlights that strong corporate earnings have been a key factor supporting markets, but notes that market gains have been concentrated in a limited number of sectors, particularly artificial intelligence and energy. With bond yields remaining elevated and valuations already reflecting significant positive expectations, there may be less room for disappointment. (Source: Charles Schwab)

Morgan Stanley

Morgan Stanley’s central assumption is that oil prices could return towards around $90 per barrel by the end of the year if shipping activity through the Strait of Hormuz returns to normal. However, the firm warns that a prolonged disruption to oil supplies, rather than a temporary price increase, would create a much greater risk for global growth and could push oil prices above $150 per barrel. (Source: Morgan Stanley)

Adam Crisafulli, Vital Knowledge Media

Adam Crisafulli of Vital Knowledge Media has suggested that the White House faces two possible paths, either a significant escalation in military action or a genuine move towards negotiations. This reflects the market reaction seen after reports of potential Pakistan-backed talks, when equities briefly recovered on hopes of diplomatic progress. The reaction showed how quickly investor sentiment can change in response to signs of de-escalation. (Source: Vital Knowledge Media)

Key points to remember

July’s market volatility was mainly driven by one central factor, the renewed US-Iran conflict, rather than a broader deterioration in corporate earnings. Company results have remained relatively strong by recent standards, which has helped limit some of the pressure on equity markets. (Sources: US Bank, Charles Schwab)

Oil remains the key indicator to monitor. Analysts broadly agree that a return to calmer conditions in the Strait of Hormuz would support market stability, while a prolonged disruption to energy supplies remains the biggest risk for markets and the global economy. (Sources: Morgan Stanley, Charles Schwab)

For European investors, the combination of rising energy costs and a more cautious European Central Bank stance is an important factor to follow. The impact may extend beyond daily market movements, particularly if higher energy prices contribute to persistent inflation and delay future interest rate cuts. (Sources: Reuters, XTB)

Reports of possible peace talks, including the late July report regarding Pakistan-backed discussions between the US and Iran, showed how quickly markets can react to signs of diplomacy. This highlights that geopolitical risks can influence markets in both directions, with developments towards escalation creating pressure and signs of resolution supporting recovery. (Source: Reuters)