Analysts at Citigroup emphasize that fluctuations in oil prices will play a crucial role in shaping stock market trends in the near future, as investors keep a close eye on the escalating tensions in the Middle East.
In a recent client briefing, Citi noted that geopolitical conflicts such as the Israel-Iran confrontation typically have short-term effects on equity markets unless they cause prolonged increases in energy costs. The firm added that if the conflict intensifies, sectors expected to outperform include European energy companies, traditional defensive stocks, and markets like Switzerland and the United Kingdom.
Before the latest surge in tensions, global stock valuations had already factored in an average amount of “geoeconomic risk,” indicating some built-in market resilience to shocks.
On Wednesday, oil prices slightly declined, giving back some of Tuesday’s 4% rise, as investors weighed concerns about possible supply disruptions against the upcoming Federal Reserve interest rate announcement. Brent crude futures dropped 0.3% to $76.20 per barrel but stayed above the $76 mark for a second consecutive day. Similarly, West Texas Intermediate (WTI) crude slipped 0.3%, closing near $73.02 per barrel in early U.S. trading.
Meanwhile, U.S. stock futures showed gains amid cautious market sentiment.
On the conflict front, Israel’s air force confirmed targeted strikes on centrifuge and weapons manufacturing sites near Tehran, continuing its campaign to halt Iran’s nuclear and missile development programs. The violence has escalated since Israeli air raids on Iranian nuclear facilities last Friday, with retaliatory missile attacks causing casualties on both sides.
U.S. involvement remains a pivotal issue. Former President Donald Trump has called for an “UNCONDITIONAL SURRENDER” from Iran, labeling the country’s Supreme Leader Ayatollah Khamenei as vulnerable and affirming U.S. support for Israel’s control of the skies. Vice President J.D. Vance clarified that any military moves would align with American interests, although the president may still opt for further actions to stop Iran’s uranium enrichment efforts.