With Trump announcing the Iran ceasefire is over, Daniela Sabin Hathorn, Senior Market Analyst at Capital.com shares what it means for markets and investors.
This represents a meaningful shift in the market narrative rather than simply another geopolitical headline. Until now, investors had largely treated the ceasefire as fragile but ultimately durable. That assumption allowed oil to fall back below $70, European equities to recover to record highs and inflation expectations to moderate.
Markets were effectively pricing a gradual normalisation of Middle East risks. Trump’s comments call that assumption into question. The immediate market reaction makes sense. A 5% jump in oil prices is less about today’s supply and more about repricing the probability of future disruption.
The Strait of Hormuz remains one of the world’s most important energy corridors, and any suggestion that negotiations have collapsed raises the risk of renewed supply interruptions or tighter sanctions. That naturally feeds into higher inflation expectations, which explains the simultaneous rise in the dollar and government bond yields.
For equities, Europe is likely to remain the most exposed. Much of the recent outperformance in the DAX and STOXX 600 had been built on lower energy prices improving the region’s growth outlook. A reversal in oil undermines one of Europe’s biggest tailwinds, particularly for energy-intensive sectors.
US equities are also vulnerable, but for slightly different reasons. Wall Street had already been showing signs of fatigue after an extended AI-led rally, and higher oil prices reinforce concerns that inflation could remain sticky, making it harder for the Fed to ease policy.
The more important question is whether this is the beginning of a sustained repricing or another headline-driven spike. My view is that markets had become too confident that geopolitical risk had largely disappeared. The premium embedded in oil had been almost completely removed despite the fact that shipping through the Strait of Hormuz had not fully normalised and negotiations remained incomplete. This latest development suggests investors may have moved too quickly in pricing the best-case scenario.
That said, I still think the base case is that neither the US nor Iran wants a broader regional conflict. A prolonged disruption would carry significant economic and political costs for both sides. Unless we see evidence of sustained attacks on energy infrastructure or shipping, the market is likely to continue oscillating between periods of escalation and de-escalation rather than pricing a permanent supply shock.
In other words, the biggest implication may not be structurally higher oil prices, but a higher geopolitical risk premium. Investors may become less willing to assume every setback will quickly be followed by renewed negotiations, meaning oil could trade with a larger cushion above its fundamental supply-demand value and markets more broadly may experience greater headline-driven volatility than they have over the past few weeks.
