Will Spiking Oil Prices Hurt the Stock Market?

• Goldman Sachs estimates Brent crude could spike to $110-$120 per barrel if the conflict extends beyond three weeks, which would likely send stocks into a drawdown or correction due to inflation and reduced consumer spending
• The S&P 500 opened down 1% on Monday following the strikes but recovered to close flat by day's end, suggesting markets are currently absorbing the impact
• Fitch Ratings identifies the most likely scenario as a short-lived conflict with regional spillover and partial Hormuz closure, rather than best-case (contained) or worst-case (prolonged with full closure) outcomes

Summary

Key Development:

Oil prices have spiked approximately 7% following joint U.S.-Israel military strikes on Iran beginning February 28, 2026. Brent crude currently trades around $71 per barrel, up $9 from a month prior, with weekend prices briefly hitting $80.

Critical Supply Concerns:

The Strait of Hormuz, through which one-fifth of global crude oil supply flows, sits at the heart of market concerns. While Iran has stated it won't close the strait—possibly due to its navy being largely destroyed—shipping traffic has voluntarily halted as vessels await safer passage conditions.

Market Impact:

The S&P 500 initially dropped 1% on Monday morning but recovered to close flat. Major indices showed resilience: S&P 500 at 6,869.50 (+0.8%), Nasdaq at 22,807.48 (+1.3%), and Dow Jones at 48,739.41 (+0.5%).

Potential Scenarios:

Analysts have outlined three scenarios. Fitch Ratings considers most likely a short-lived conflict with regional spillover and partial strait closure. Goldman Sachs warns that conflicts exceeding three weeks could drive Brent crude to $110-$120 per barrel, triggering inflation, reduced consumer spending, and likely stock market corrections or drawdowns.

Economic Implications:

While alternative pipelines and onshore storage can temporarily absorb supply disruptions, prolonged conflict would severely impact U.S. and global economies. Higher energy prices create stagflation risks—combining inflation with decreased economic output as consumers redirect spending to expensive gasoline.

Analysts generally expect a short, contained conflict, though uncertainty remains elevated regarding regional spillover effects.