Traders work on the floor of the New York Stock Exchange during afternoon trading on June 10, 2026 in New York City.
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As hostilities flare up again in the Middle East, investors are increasingly grappling with the possibility of a prolonged conflict and pricing in a “long standoff.”
The latest escalation comes after U.S. Central Command attacked Iranian military targets, drawing retaliation from Tehran, which attacked Gulf states on Thursday.
U.S. futures rose even as markets in Asia were broadly lower. Oil, It last rose about 2% on Thursday. has remained below $100 a barrel As traders still see enough buffer in the market to prevent a complete supply shock.
Despite disruptions to shipping through the Strait of Hormuz, alternative export routes, increased US energy exports and the release of strategic petroleum reserves have helped cushion the blow.
For investors, the bigger challenge may be in a world where energy costs remain high while borrowing costs remain high. The Iran conflict, which the US has said will not be an “endless” one, appears to be increasingly drawn out, if not becoming a “forever war”.
“The term “Forever War” puts the focus in the wrong place. Wars rarely last forever, but risk premiums do,” said Billy Leung, investment strategist at Global X ETFs.
“After mediation failed and strikes resumed, markets have moved from pricing a ceasefire to pricing out a long fight,” he said.
As each new exchange of blows makes a diplomatic solution seem less likely, markets are preparing for a longer conflict. The result may not be a sharp downturn, but it could be something more lasting: a world in which investors demand a higher premium for geopolitical risk, even after the headlines fade.
Leung said investors no longer see the conflict as a temporary inflation shock. Instead, markets are reassessing the cost of capital in a world of heightened geopolitical uncertainty.
“A prolonged war ends the era in which you buy everything and get rewarded for it,” he said. “As both energy costs and real capital costs rise, the hurdles to profitability are rising across the board.”
With the failure of mediation and the resumption of strikes, markets have moved from pricing a ceasefire to pricing a long fight.
Benjamin Jones, global head of research at Invesco, said the company’s base case remains a “status quo” scenario characterized by intermittent strikes rather than all-out war. He noted that stock markets largely followed the traditional geopolitical pattern: They “sold off and then recovered.”
“We take this as a reminder to investors that in the face of volatility, the best course of action is often to remain invested,” Jones said.
Fitch Ratings this week downgraded its outlook for the global government bond sector to “deteriorating” from “neutral,” citing the impact of the U.S.-Iran war. The ratings agency expects the conflict to weaken global growth, increase inflation and bond yields and increase geopolitical risks.
“Both the U.S. and Iran believe time is on their side and have no interest in agreeing to concessions that cross each other’s red lines,” Andy Lipow, president of Lipow Oil Associates, told CNBC.
“The standoff could continue for quite some time, no matter how many bombs the U.S. drops on Iran,” he added.
