A year ago, President Donald Trump sent global markets into a tailspin with his Liberation Day tariffs. Investors scrambled to adjust. They built entire strategies around that policy shock, rotating money out of U.S. assets and into Japan, Europe, and emerging markets. Now, those bets are collapsing. The Iran war—entering its second month—has rewritten the rules entirely.
This isn’t a policy decision from Washington. It’s a geopolitical rupture. And it’s forcing a violent unwinding of the trades that defined markets since last spring.
Global stocks have shed roughly $14 trillion in value since the conflict erupted. Risk appetite vanished overnight. Bonds are whipsawing as traders reprice inflation and interest rate expectations. Emerging markets, which had pulled in capital with strong growth and cheap valuations, are now bleeding funds. Their economies depend heavily on oil imports, and oil has become the story.
The Strait of Hormuz is the chokepoint. About a fifth of the world’s oil normally passes through that narrow waterway. Now, it’s effectively closed to most vessels. Prices are surging. Energy consultancy FGE NexantECA warns that crude could hit $150 or even $200 a barrel if the near-blockade persists for six to eight more weeks.
On Tuesday, both the U.S. and Iran hinted at openness to a resolution. Trump said American forces could withdraw within two to three weeks. Investors briefly recalibrated. But even if the conflict ends on that timeline, normalizing flows through the Strait will take time. Trump added that he expects other nations to handle the waterway issue. That’s not exactly reassuring.
Christy Tan, an investment strategist at the Franklin Templeton Institute in Singapore, draws a sharp distinction. “Liberation Day was an America-made policy shock, while the Iran war is arguably an exogenous geopolitical shock,” she said. “The conflict in Iran will push prices higher via the energy complex meaningfully as long as the war persists and may eventually be a bigger negative growth hit.”
The dollar tells the clearest story. The Bloomberg Dollar Spot Index jumped 2.4% last month—its best performance since July. The U.S. is the world’s top oil producer. When energy prices spike, the dollar benefits. It also enjoys haven demand when global stress rises. In March, the dollar strengthened against every major currency. Central banks around the world intervened in foreign exchange markets, underscoring just how disruptive the war has become.
U.S. equities are holding up slightly better than their global peers, though “holding up” is relative. The S&P 500 Index fell 5.1% in March. That’s still painful, but it’s less severe than the drops in Asia and Europe. Energy stocks rallied, cushioning the blow. Meanwhile, MSCI’s global stock index tumbled more than 7%.
Mark Richards, head of dynamic multi asset at BNP Paribas Asset Management, sees the logic. “Proximity to the conflict, and economic and equity sensitivity to rates and energy (oil and gas) prices are clearly more of an issue for EU and Asian markets,” he said.
This marks a sharp reversal from last year. Around this time in 2025, Trump’s tariffs had sent the dollar tumbling. The index dropped 4% in April alone and finished the year down 8.1%—its worst showing since 2017. Investors diversified aggressively into non-U.S. assets. Japan, Europe, and emerging markets all benefited.
The S&P 500 plunged more than 10% in the two days after April 2, 2025—Liberation Day. A week later, it soared 9.5% in a single session, the biggest one-day jump since 2008. Trump had announced a 90-day pause on tariffs for dozens of countries. Markets exhaled. The benchmark ended 2025 up about 16%, but that trailed the nearly 21% rally in global equities. The U.S. underperformed.
Many money managers expect that dynamic to return once the energy crisis eases. Vincent Mortier, chief investment officer at Amundi SA—Europe’s largest asset manager with €2.38 trillion under management—sees the current U.S. strength as temporary. “The US is seen as a relative winner of these events, or at least not a big loser, thanks notably to its energy-exporter status,” he said from Paris.
But he’s confident that won’t last. “A resolution to the ongoing energy crisis will be found in the next few weeks, maybe a few months,” Mortier said. “The move to diversify away from US assets will not fade away. The dollar is still on a long-term path of weakening for fundamental reasons, while US equities are still very expensive.”
Jeffrey Blazek, co-chief investment officer of multi-asset at Neuberger Berman Group in New York, agrees. “A peace deal would likely trigger a selloff of the dollar against most major currencies and outperformance of non-US equity markets relative to US equities,” he said.
Emerging markets are taking the hardest hit. For months, they were among the biggest winners of the capital flight from the U.S. Now, the surge in oil prices has turned the tide. Developing nations are heavy energy importers. They’re considered a proxy for risk. When risk appetite collapses, they suffer first.
A gauge of developing-nation stocks dropped 13% last month—the worst performance in six years. A measure of emerging-market currencies fell nearly 3%. The reversal has been brutal.
Jeff Grills, head of U.S. cross-asset and emerging-markets debt at Aegon Asset Management, sees complexity ahead. Last year’s “Sell America” trend has flipped, leaving investors navigating elevated oil prices and geopolitical risk. “My big worry is that this spirals into something more onerous,” he said. If crude hits $150 a barrel, he warns, it could trigger a broad growth slowdown across emerging economies.
Macquarie Group has issued an even starker warning: brace for $200 oil if the war drags into June.
Trump’s latest comments have revived a familiar pattern. Traders have come to expect that he’ll reverse course if market pain becomes too severe. He did it with tariffs last year. Will he do it again with Iran?
Ian Samson, a portfolio manager at Fidelity International, lays out the two scenarios. “If petroleum products start to flow through the Strait of Hormuz soon, before reaching a point of chronic shortages, markets will climb a wall of worry,” he said. “Conversely, if the conflict continues in its present form for weeks and months, there will be few places to hide other than US dollar cash.”
The stakes are clear. If the conflict ends quickly, the dollar weakens, U.S. equities underperform, and the diversification trade roars back. If it drags on, oil keeps rising, inflation expectations soar, and emerging markets bleed. Either way, the investment playbook built around Trump’s tariffs is now obsolete.
This war has reordered priorities. Energy security matters more than trade policy. Geopolitical risk trumps monetary policy. And the market is learning, once again, that the world is more fragile than it looks.
