Global Macro Research
Macro BytesConflict in Iran: how long will it last, and what will be the economic impact?
The Iran conflict has escalated fast. Energy prices have spiked and risk sentiment has been hit, but financial markets are orderly. What does that tell us about what investors are expecting from the conflict, and what could still go wrong?
Authors
Paul Diggle
Chief Economist
Lizzy Galbraith
Senior Political Economist
Luke Bartholomew
Deputy Chief Economist
Duration: 34 Mins
Date: Mar 05, 2026
The war in Iran and the wider Middle East has dealt a significant shock to asset prices. We look at the US and Israel’s war aims and examine why Iran’s response has been larger than expected.
Paul, Luke and Lizzy consider what asset prices appear to be pricing in about the likely outcome of the conflict, and what this could mean for growth, inflation and interest rates. They also reflect on how US policy fits within Trump’s broader foreign policy agenda.
Some highlights:
Some highlights:
- For the global economy, much turns on the disruption to the oil market. The single most important economic variable is how long the Strait of Hormuz, through which around a fifth of global oil supply normally flows, stays closed. Markets appear to be assuming disruption lasts days or weeks, not months. A prolonged closure would be a very different - and far more damaging - scenario.
- Iran’s response has been bigger than expected. Iran has targeted shipping, energy infrastructure and civilian sites across the Gulf. That suggests Tehran sees the conflict as existential, and is willing to spread economic pain to raise the pressure on the US and its allies.
- Markets are nervous but not panicking. Equities are lower and oil prices higher, but moves have been orderly so far. That suggests markets are pricing a contained conflict. If investors were bracing for a prolonged regional war, prices would likely look very different.
- Bonds aren’t providing protection. Government bond yields have risen rather than fallen, meaning they’re not offsetting equity losses. That’s typical of supply-side shocks — where inflation rises and growth falls — and a reminder that geopolitics can scramble familiar market relationships.
- Gold’s weakness is a surprise. Despite geopolitical stress and rising inflation risks, gold prices have dipped. The team discuss whether this reflects investors selling recent winners to raise cash, and whether gold’s safe-haven role could reassert itself later.
- Central banks face a tricky trade-off. After recent inflation scares, policymakers may be less willing to ‘look through’ temporarily higher inflation, potentially slowing or limiting interest-rate cuts.
- Trump’s foreign policy remains flexible - by design. The episode closes by asking whether US actions reflect a coherent strategy or improvisation. The answer may be that ‘America First’ allows for both — forceful action where US interests are challenged, and rapid shifts when circumstances change.
Listen to the full discussion on the latest episode of Macro Bytes.
- This episode of Macro Bytes was recorded at 15.30 on the 4th March 2026.
