Markets have been relatively calm after the US strikes on Iran over the weekend, although investor sentiment could prove fragile if they fail to bring Iran to the negotiating table.
The US coordinated air and missile strikes on Iranian nuclear facilities over the weekend, using B-2 stealth bombers and submarine-launched cruise missiles. The operation, dubbed ‘Midnight Hammer’, targeted deeply buried sites at Natanz, Fordow and Isfahan.
The Pentagon deployed its 30,000-pound GBU-57 bunker-buster bombs in combat for the first time, aiming to destroy underground enrichment labs. Initial assessments hailed the strikes as successful, though detailed damage reports – especially at the heavily fortified Fordow site – remain incomplete.
The US’s move followed a series of Israeli air raids earlier this month that killed senior Iranian commanders and heightened regional tensions. Iran has vowed retaliation, raising fears of cyberattacks, missile strikes or disruption of global oil trade through the Strait of Hormuz.
Russia and China condemned the strikes, with Moscow warning that some nations may now consider arming Iran with nuclear weapons. In Washington, the attack drew sharp criticism from Democrats and some Republicans for bypassing congressional authorisation and risking deeper conflict.
UK and broader European reactions have largely focused on reinforcing the need for de-escalation even while affirming concerns over Iran’s nuclear ambitions. UK prime minister Keir Starmer backed the US strikes, calling them justified to counter the threat, but he cautioned they risk widening the conflict and urged Tehran to return to diplomatic negotiations.
Starmer held talks with French president Emmanuel Macron and German chancellor Friedrich Merz and jointly reaffirmed that Iran must not acquire nuclear weapons, while emphasising the necessity of a diplomatic path forward.
Other European leaders echoed this call. France and Germany, along with the EU, stressed restraint and pushed for renewed talks, even as Merz praised Israel’s earlier strikes on Iranian nuclear sites. The EU’s foreign policy chief urged all parties to step back and shift focus to diplomacy, noting that preventing Iran from securing nuclear weapons remains a shared priority.
Neil Wilson, UK investor strategist at Saxo Markets, said the main question now is whether the US strikes make a resolution with Iran more or less likely. While it has near-term implications for oil prices – which have moved higher in recent weeks – wider consequences are harder to forecast.
“Geopolitics is always discounted pretty quickly unless there is a direct read-through from events to particular asset,” he explained.
“Equity markets have a mild risk-off mood this morning but not quite the big knee-jerk move that might have happened had the strikes been announced when markets were open – time has allowed for selling to be more orderly.
“The FTSE 100 is doing a little better than other European indices with oil prices giving index heavyweights Shell and BP a lift. Overall, the reaction to this slide into chaos remains muted.”
Chris Beauchamp, chief market analyst at IG, characterised the markets’ reaction as “a collective shrug”, noting that overnight losses for stocks had been clawed back by the time markets opened while the oil price came down from its high.
“Are investors being too calm?” Beauchamp asked.
“The scope of any Iranian response is still being determined, it seems, but while it suits the regime to talk about closing off Hormuz, such a move would bring down further retaliation. At present, it looks like Iran has few good options, which may be enough to stay Tehran’s hand.”
The Strait of Hormuz is one of the most strategically significant maritime chokepoints in the world. Located between Oman and Iran, it connects the Persian Gulf with the Gulf of Oman and the Arabian Sea.
Roughly one-fifth of the world’s total oil supply (around 17 million barrels a day) passes through this narrow waterway, making it critical to global energy markets.
Its significance lies in both volume and vulnerability. Disruption of traffic through Hormuz, whether from military conflict, mining or a blockade, could cause a sharp spike in global oil prices and destabilise economies reliant on energy imports. Iran has repeatedly threatened to close the strait during periods of tension, which is why military activity or conflict in the region is closely watched by energy markets and governments alike.
Shane Oliver, head of investment strategy and chief economist at Sydney-based asset manager AMP, said, while any loss of life in war is tragic, financial markets typically only react strongly when there's a significant threat to economic stability.
With conflict in the Middle East, this typically comes from disruptions to oil supply. So far, oil prices have risen about 12% amid the uncertainty, but they remain below their average levels from 2024.
“The US intervention has substantially increased the risk, with the key being what Iran does. If after a few token moves, Iran prioritises regime survival and ‘surrenders unconditionally’ as Trump demands, then oil prices will quickly settle down and shares will rally. This market reaction is basically what happened when the US coalition entered the first and second Gulf wars,” Oliver said.
“However, Iran has said it ‘reserves all options’ and is reportedly considering its response. This could involve an attack on US military bases in the region which, if more than a token attack, would likely see retaliation by the US and keep markets on edge. Or it could see Iran strike neighbouring oil producers (unlikely) or disrupt shipping in the Strait of Hormuz.
“As 20% of global oil supplies and 25% of LNG trade flows through the Strait any disruption could push oil prices above $100 a barrel, possibly to around $150/barrel. This would likely only be brief, as the US military would likely quickly move to stop Iran. But even if it’s only for a few weeks it would still be a big blow to confidence regarding the economic outlook and so could push shares down by 5-10% at least.”