Published by Global Banking & Finance Review®
Posted on March 5, 2026
5 min readLast updated: April 1, 2026
Add as preferred source on GoogleWall Street opened lower as the Iran–Israel conflict pushed oil toward $85, fueling a sell‑off in bonds, lifting U.S. Treasury yields and the dollar amid renewed volatility in stock and currency markets. Markets brace for prolonged conflict and inflation pressures.
By Sinéad Carew and Marc Jones
NEW YORK/LONDON, March 5 (Reuters) - Equity indexes fell on Wall Street and in Europe on Thursday while government bonds sold off and the U.S. dollar climbed, as oil prices surged on supply fears amid intensifying fighting on the sixth day of the U.S.-Israeli war with Iran.
The campaign against Iran continued while Tehran launched a wave of missiles at Israel and vowed to retaliate against Americans "wherever they are" after a U.S. strike on a ship far from the battle zone. U.S. President Donald Trump claimed the right to have a say in who next leads Iran, while U.S. and Israeli jets hit areas across the country and Gulf cities faced renewed bombardments. Also, Israel warned residents to leave Beirut's southern suburbs, including Hezbollah-controlled areas, on Thursday, prompting an exodus from a swathe of the capital known as Dahiyeh which a far-right Israeli minister said would soon resemble parts of Gaza.
Oil prices and stock markets had steadied on Wednesday after the U.S. said it would protect ships in the Strait of Hormuz, through which around one-fifth of the world's oil and liquefied natural gas is shipped.
But tankers came under attack in Gulf waters on Thursday as the conflict escalated, and Iranian drones entered Azerbaijan, raising the risk of the crisis spilling into other oil-producing states. A Bahamas-flagged crude tanker was targeted by an Iranian remote-controlled boat laden with explosives while anchored near Iraq's Khor al Zubair port, according to initial assessments. A second tanker at anchor off Kuwait was taking on water and spilling oil after a large explosion on its port side.
"We have a cloud of uncertainty with the Iranian crisis under way. There's no real meaningful clarity on how long this crisis will last and what the total impact will be," said Mona Mahajan, head of investment strategy and asset allocation at Edward Jones, although she noted that past Middle East crises have tended to be relatively short-lived.
Citing the reports of tanker attacks, Mahajan said investors were unnerved on Thursday because of the "very meaningful move higher in oil prices."
On Wall Street indexes pared earlier losses but still closed the session in the red. The Dow Jones Industrial Average fell 784.67 points, or 1.61%, to 47,954.74, the S&P 500 fell 38.79 points, or 0.56%, to 6,830.71 and the Nasdaq Composite fell 58.50 points, or 0.26%, to 22,748.99.
MSCI's gauge of stocks across the globe fell 3.36 points, or 0.33%, to 1,028.23. Earlier, the pan-European STOXX 600 index closed down 1.29%, while Europe's broad FTSEurofirst 300 index fell 33.00 points, or 1.35%.
This was in contrast to MSCI's Asia Pacific price index, which rose 2%. South Korea's KOSPI index closed up almost 10%. The index, which has been under pressure due to the country's dependence on imported oil, erased most of Wednesday's record drop after President Lee Jae Myung ordered activation of a $68 billion market stabilisation fund.
"Today there's more hesitancy because of concerns around the potential for the price of oil to get a lot higher. There's a lot of attention being given to the bottleneck that is occurring in the Strait of Hormuz," said Kristina Hooper, chief market strategist at Man Group.
And while traders have been reacting to the latest headlines from the Middle East, Hooper said the market's current "attention span is that of a gnat." As such, she warned of potential volatility after Friday's U.S. non-farm payrolls report, with investor concerns rising over labor-market risks from artificial intelligence developments.
"You could see an economic data point change the mood quickly. There's the potential we see that tomorrow with the jobs report," she said.
In currencies, the dollar rebounded from a brief pullback on Wednesday as nervous investors sought safe-haven assets.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.23% to 99.03.
The euro was down 0.22% at $1.1607 while against the Japanese yen, the dollar strengthened 0.3% to 157.5.
In bonds, U.S. Treasury yields rose for a fourth straight day on worries that higher oil prices could push up inflation and affect Federal Reserve policy.
The yield on benchmark U.S. 10-year notes rose 5.1 basis points to 4.133%, from 4.082% late on Wednesday while the 30-year bond yield rose 3 basis points to 4.7469%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 3.7 basis points to 3.581%.
Oil prices settled sharply higher as the war disrupted supplies and shipping, prompting some major Middle Eastern producers to cut output. Around 300 oil tankers remained inside the Strait of Hormuz, with traffic largely halted since the weekend, according to ship-tracking data from Vortexa and Kpler that excludes some of the smallest tankers.
U.S. crude settled up 8.51%, or $6.35, at $81.01 a barrel while Brent rose to $85.41 per barrel, up 4.93% or $4.01 on the day.
Elsewhere in commodities, gold prices were reversing Wednesday's gains on higher Treasury yields and the firmer dollar.
Spot gold fell 1.02% to $5,082.93 an ounce. U.S. gold futures fell 1.1% to $5,064.10 an ounce. Spot silver fell 1.39% to $82.25 an ounce.
(Additional reporting by Rocky Swift; Editing by Alexandra Hudson, Nivedita Bhattacharjee, Mark Potter and Deepa Babington)
The Iran conflict has led to a selloff in global bond markets, a rise in oil prices, and increased volatility across stocks and currencies.
Oil prices surged, with Brent crude climbing over 15% since recent air strikes and reaching around $84 per barrel.
Investors are closely watching central banks like the ECB, which may consider policy changes amid inflation risks and market turbulence.
South Korea's KOSPI rebounded after government interventions, and Japanese and Chinese markets also saw gains due to local policy support.
Experts warn that markets are not prepared for a conflict lasting more than a few weeks, and a prolonged war could raise inflation and hurt growth.
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