Energy markets are once again being impacted by conflict in the Middle East, driving oil prices above $100 per barrel for the first time since 2022. Concurrently, the appointment of Mojtaba Khamenei as Iran's new supreme leader has further clouded the near-term prospects for a resolution to the regional tensions. Equity markets declined on Monday. Bonds weakened further, and investors seeking liquidity flocked to the safety of the US dollar, which rose to its highest level since January.
European blue-chip indices opened significantly lower across the board, with widespread declines in banking, industrial, and technology stocks. Germany's DAX index fell 2.7%, while France's CAC 40 dropped 2.6%. Banking stocks also weighed on Italy's FTSE MIB, which declined 2.5%. The Euro Stoxx 50 index neared a technical correction, approaching a 10% drop from its February peak.
With no signs of de-escalation in the US-Israel conflict with Iran, US blue-chip futures indicated a broad sell-off in pre-market trading during the European morning. S&P 500 futures fell 0.8%. Futures for the Dow Jones Industrial Average and the tech-heavy Nasdaq both dropped approximately 0.9%. US bank stocks appeared set to follow their European counterparts lower, with Citigroup and Goldman Sachs down 2.9% and 2.2%, respectively, in pre-market trading.
Oil prices pared some of their earlier gains after the Financial Times reported that G7 finance ministers would meet to discuss releasing strategic reserves. Despite this, the significant rally was enough to trigger a fresh wave of broad selling across Asian and European equity markets. Agricultural commodities also rose, with wheat prices nearing a two-year high.
Brent crude surged 12% to $104 per barrel following discussions of output cuts by Gulf oil producers, intensifying concerns about inflationary impacts and pushing the yield on the 10-year US Treasury note up 3 basis points to 4.17%. The US dollar advanced 0.3%.
Initially, the moves in oil, bonds, and equities were more pronounced; however, news of the potential coordinated release of petroleum reserves by G7 nations tempered the market volatility.
Jung In Yun, CEO of Fibonacci Asset Management Global, commented, "Geopolitical uncertainty is rising. A prolonged conflict is driving oil prices higher and exacerbating inflation fears, which is weighing on global risk assets and increasing volatility across markets. There are simply too many concerns to worry about right now."
The sell-off introduced fresh pressure as both the US and Iran adopted postures suggesting a potential protracted confrontation. Iran's appointment of the son of the late Ayatollah Ali Khamenei as the new supreme leader indicates that hardliners in Tehran remain firmly in control after a week of conflict with the US and Israel. Meanwhile, US President Donald Trump stated that higher oil prices are a "very small price to pay" for security.
Gary Tan, a portfolio manager at Allspring, noted, "Iran's appointment of a new leader, despite opposition from the Trump administration, increases the likelihood that the current geopolitical tensions could persist longer. This adds another layer of uncertainty for markets at a time when investors are already concerned about elevated valuations in certain sectors."
David Kruk, Head of Trading at La Financière de l’Echiquier in Paris, said, "Markets are pricing in a worst-case scenario. This sell-off is entirely about oil prices, the resulting implications for inflation, and the risks of stagflation."
The sell-off in bonds continued from the previous week. According to Tradeweb data, the yield on the two-year US Treasury note rose 5.9 basis points to 3.611%, while the 10-year yield increased 5.7 basis points to 4.187%. US Treasury yields climbed as inflation concerns continued to outweigh growth worries, even after weak US employment data released on Friday.
Barclays rates strategists Anshul Pradhan and Demi Hu stated in a report that bonds failed to act as a safe haven last week because the war's impact is skewed more toward inflation and larger budget deficits than toward a slowdown in US economic growth. "With weak economic data taking a back seat, the duration of the conflict is key."
European bond markets faced a more aggressive sell-off than their US counterparts. The yield on Germany's 10-year bond rose to a 12-month high of 2.931%. Traders have fully priced in two interest rate hikes by the European Central Bank and increased bets on rate increases from the Bank of England. The UK two-year gilt yield jumped 21 basis points.
Andrea Gabellone, Global Head of Equities at KBC Securities, remarked, "Brent crude above $100 represents a real risk for both inflation and the economy. EU economies are the most vulnerable as they face a double hit from soaring oil and gas prices, not to mention the proximity of the conflict."
Adam Linton, a macro strategist at Bloomberg, observed, "The situation in equity and bond markets still looks worse in Europe than in the US, even though oil prices have retreated from their highs. The bar for restoring market order is high, with traders focused on the bigger picture of this conflict."
Hostilities continued as missile and drone attacks from Iran targeted Arab nations along the Persian Gulf and Israel. Iran stated it has the capability to sustain the conflict for months. Israel struck fuel storage facilities in Tehran and threatened Iran's power grid.
According to three diplomats familiar with the matter, officials are increasingly concerned that Iran's stockpile of uranium, nearing weapons-grade enrichment levels, may have been relocated. The Trump administration is reportedly considering deploying special forces to seize these materials.
Mathieu Racheter, Head of Equity Strategy at Julius Baer, said, "Our base case remains that oil prices will eventually fall back below $100 as policy responses and market adjustments alleviate supply concerns; however, the news flow over the weekend has increased the possibility of a more prolonged energy shock."
Hironori Akizawa, Fund Manager at Tokio Marine Asset Management, commented, "Honestly, I don't know how long this will last, but I believe they will eventually reach some kind of agreement. I expect negative market sentiment to bottom out at some point this month, but it's far from time to rush into buying the dip."
The US dollar held strong after reaching a three-month high overnight. As a net oil exporter, the US benefits from higher oil prices; meanwhile, markets have scaled back expectations for Federal Reserve rate cuts due to potential inflationary impacts. The US Dollar Index rose 0.3% to 99.27, making dollar-denominated commodities more expensive for overseas buyers.
Bitcoin edged higher but remained below $70,000 as overall market sentiment stayed cautious. Bitcoin rose 0.3% to $67,444, after falling to a one-week low of $65,639 overnight.
Veteran strategist Ed Yardeni has raised his probability of a market "crash-like decline" for the remainder of the year from 20% to 35%, updating his outlook for what he calls a "rapidly changing era."
Concurrently, he sharply reduced the probability of a "melt-up scenario"—a rally driven more by investor sentiment than fundamentals—from 20% to just 5%.
Yardeni wrote in a report, "The US economy and stock market, like the Fed, are caught between the Iranian shock and a hard place. If this oil price shock persists, the Fed's dual mandate will be squeezed between higher inflation risks and rising unemployment risks."
Gold declined amid a stronger dollar and concerns that interest rates may stay higher for longer. Soaring crude prices intensified US inflation worries, leading markets to believe the Fed is more likely to maintain current interest rates for an extended period, thereby pressuring gold.
**Focus Stocks:**
Energy stocks rose broadly in pre-market trading.
Airlines stocks fell collectively in pre-market trading. Delta Air Lines dropped 4.4%, while Southwest Airlines and Ryanair declined 3.6%. United Airlines and American Airlines fell 3.5%, and JetBlue Airways was down 2%. The surge in international oil prices is driving up jet fuel costs, coupled with widespread suspensions of Middle Eastern routes.
Memory chip concept stocks declined broadly pre-market. Rambus and Seagate Technology fell over 3%, Western Digital dropped more than 2%, and Everpure and Micron Technology declined nearly 2%.
Lumentum rose over 5% pre-market, Vertiv Holdings gained more than 3%, and Coherent and EchoStar Communications both advanced over 2%. These companies were added to the S&P 500 index, effective pre-market on Monday, March 23, 2026.
Hims surged 55% pre-market after signing a licensing agreement with Novo Nordisk for weight-loss drugs.
Blue Owl Capital fell over 1% and NatWest dropped more than 3% pre-market on reports that both companies have exposure to the collapsed real estate lender.
Canadian Natural Resources continued its rise, up 4% pre-market, poised to set another new high at the open, supported by rising oil prices and positive earnings.
Kingsoft Cloud jumped 15.68% pre-market, following a 13.66% gain in its H-shares, driven by the popularity of OpenClaw.
XPeng Motors advanced 2.5% pre-market following the launch of the G6 super-range extended version.
Bilibili rose over 1% pre-market as analysts anticipate that new game releases could improve the outlook for its gaming business.