Strait of Hormuz Shuts Amid Iran Conflict, Sparking Oil Shock Fears as AI Stocks Defy Market Gloom

Market Snapshot

• 📉 S&P 500: 6,848.00 (-0.31%)
• 📉 Dow Jones (Futures): (-0.45%)
• 📉 S&P 500 (Futures): (-0.19%)
• 📉 Nasdaq 100 (Futures): (-0.24%)
• 📈 US 10-YR Treasury Yield: 4.123% (+1.00%)
• 📈 Bitcoin (BTC): $71,980 (+1.20%)
• 📈 Oil (WTI): $77 (+1.04%)
• 📈 Gold: $5,164 (+0.46%)
• 📉 FTSE 100: £10,573 (-0.34%)

US stock markets have opened on a weaker footing, with the S&P 500 pulling back to around 6,848 after failing to push past the 6,880 resistance level. Traders are now closely watching the 6,810-6,815 range as a critical area of support. If the index holds above this level, it may stabilise, but a break below could signal further selling pressure throughout the session.

Geopolitical Shock: Iran Conflict Threatens Global Economy

A coordinated US-Israeli military campaign against Iran has entered its sixth day, escalating into the most significant conflict in the region for two decades. The immediate economic consequence has been the effective closure of the Strait of Hormuz, a critical chokepoint for global energy, sparking fears of a new oil shock and the potential for stagflation—a toxic mix of rising inflation and slowing economic growth.

The operation has been extensive, with over 2,000 targets struck in Iran. The primary risk for the global economy is not the military action itself, but the disruption to the 20 million barrels of oil that pass through the Strait of Hormuz daily, accounting for about 20% of the world's supply.

A Power Vacuum Creates Uncertainty

The conflict is complicated by a leadership crisis in Tehran. The initial strikes reportedly killed Supreme Leader Ali Khamenei and dozens of senior officials. This has created a power vacuum, leaving no clear authority to negotiate a ceasefire.

This breakdown in leadership means military units may be acting without central command. While markets are currently pricing in a disruption of around four weeks, the lack of a clear negotiating partner in Iran could extend the crisis far longer than anticipated. This situation is reminiscent of past crises, but the internal collapse of Iran's leadership adds a layer of unpredictability not seen in conflicts like the 1973 OPEC embargo.

Oil Supply Bottlenecks and Stagflation Risk

The closure of the Strait has sent shockwaves through energy and consumer markets. However, the monster rally in US crude oil took a brief pause after the US Treasury Secretary promised aid for tankers, though no timeline was given for when the Strait would be safe for transit.

• Shipping Halted: Major insurers have suspended war-risk coverage, bringing tanker traffic to a standstill. Supertanker rental rates from the Middle East to China have more than doubled.
• Consumer Pain: In the US, the impact hit drivers immediately, with petrol prices jumping 11 cents overnight to $3.11 per gallon, the largest single-day increase since 2022. Analysts warn prices could climb towards $3.50.
• Bypass Plans Fall Short: Saudi Arabia's state oil company, Aramco, is rerouting some crude through its Red Sea port, but its capacity is a fraction of what usually transits Hormuz. Iraq has almost no alternative export route.
• Fed's Dilemma: The oil shock lands at a fragile moment for the global economy. A sustained period of high oil prices could force central banks like the US Federal Reserve into a corner. They would have to choose between raising interest rates to fight inflation (risking a recession) or cutting rates to support growth (risking higher inflation). This decision will fall to the next Fed Chair, with President Trump formally nominating Kevin Warsh for the role.

Global Ripple Effects

The conflict's impact is spreading far beyond the Middle East, with Asian markets feeling particular volatility. South Korea's main stock index, for example, had its worst day on record amid conflict concerns before roaring back in the following session with its best day since 2008.

Amazon's cloud computing unit reported that its data centre in Bahrain was damaged by a nearby drone strike, with two other facilities in the UAE also being hit. This marks a direct spillover of the conflict into global technology infrastructure.

Economies dependent on the region are also feeling the pressure. India, for example, faces a potential dent in the $51.4 billion it receives in remittances from its citizens working in Gulf countries. Meanwhile, facing its own economic headwinds, China set its GDP growth target for 2026 at just 4.5% to 5%—the lowest on record since the early 1990s—as it grapples with deflation and trade tensions.

Aviation and Travel Chaos

The $11.7 trillion global travel sector is in a tough spot. At least 20,000 flights in and out of the Middle East have been cancelled due to airspace closures, leaving more than a million people stranded. Analysts have called it one of the most chaotic periods for the industry in recent memory, leading to a surge in travellers searching for “cancel for any reason” travel insurance policies.

Political Divisions in the West

The military action has not received universal support. A recent poll showed 59% of Americans disapprove of the strikes, and the US Senate blocked a resolution that would have required the President to pull back from the war, reflecting partisan divisions on the use of military force without direct congressional approval. While Washington insists the operation will not become a "forever war," experts are sceptical, adding to market uncertainty.

In Europe, the conflict is prompting a strategic rethink, with French President Emmanuel Macron announcing plans to increase France's number of nuclear warheads in the most significant update to the country's deterrence policy in 30 years.

Pockets of Strength: AI and US Economy Show Resilience

Despite the geopolitical turmoil, key sectors of the economy are showing remarkable strength, creating a split narrative for investors.

Broadcom's AI Boom

Chipmaker Broadcom ($AVGO) delivered a powerful signal that the artificial intelligence boom is not pausing for war. The company reported record revenue, driven by a 106% year-over-year surge in its AI semiconductor division, and its shares rose in response.

Crucially, CEO Hock Tan projected that AI chip revenue could exceed $100 billion in 2027. Broadcom designs custom chips for tech giants like Google and Meta, who are investing heavily in their own AI infrastructure. These results suggest that capital spending on AI remains a top priority for big tech.

Labour Market Holds Firm, but Shows Cracks

In the US, the latest ADP payroll report showed that private companies added 63,000 jobs last month, slightly more than expected. However, the figure for January was sharply revised downwards to just 11,000, indicating that the labour market, while stable, may be losing momentum. The growth was concentrated in sectors like healthcare and construction, while professional services cut 30,000 jobs.

There are also signs of consumer stress. While 401k retirement account balances grew last year, early hardship withdrawals are rising, suggesting some households are feeling financial pressure.

Trump Tackles AI's Energy Problem

As the AI boom accelerates, its massive energy consumption is becoming a political issue. With Americans blaming AI data centres for rising energy prices, President Trump met with executives from Google, Meta, Microsoft, and Oracle to address the problem.

The meeting resulted in the tech giants signing a pledge to supply their own power for new data centres. However, the pledge appears to contain no binding commitments, leading to scepticism about its effectiveness. The move highlights a growing challenge for the tech industry: balancing exponential growth with its environmental and social footprint.

US Looks to Rebuild Maritime Muscle

Away from the immediate crises, a long-term strategic shift is underway in the United States to revive its dormant shipbuilding industry. The US now controls less than 1% of the global commercial shipbuilding market and is outproduced by China at a staggering 200-to-1 ratio.

To counter this, the Trump administration has launched a Maritime Action Plan (MAP). The plan aims to use billions in federal financing and create over 100 "Maritime Prosperity Zones" to drive investment. It also proposes a fee on foreign-built ships calling at US ports, which could generate enormous funds to rebuild domestic capacity.

However, a strategic debate is brewing. The White House has pushed for expensive, advanced warships, while maritime experts are urging a shift towards cheaper, more flexible vessels adapted from existing commercial designs. This reflects the reality of modern warfare, where drone attacks can neutralise costly ships in seconds. Key defence contractors at the centre of this revival include Huntington Ingalls ($HII), General Dynamics ($GD), and BAE Systems ($BAESY).

Company News Roundup

• Berkshire Hathaway ($BRK.B): The conglomerate has started repurchasing its own shares for the first time since 2024. CEO Greg Abel confirmed he consulted with Chairman Warren Buffett on the move, a classic signal of confidence that management believes its stock is undervalued.
• Elon Musk / X: The billionaire testified in federal court, pushing back on allegations that he committed civil securities fraud by trying to lower Twitter's stock price before he purchased the company, which he later renamed X.
• Xiaomi ($XIACF): The Chinese tech firm is expanding far beyond its budget smartphone origins. It now plans to release a new high-end smartphone chip each year, is testing humanoid robots on its electric vehicle assembly lines, and is preparing to launch its own AI assistant.
• Formula One ($FWONK): Under Liberty Media's ownership, Formula One's revenues have nearly doubled to $3.9 billion. However, the business faces a challenging 2026 with a risky new media deal with Apple TV+, major changes to car designs, and the entry of new teams like Cadillac and Ford.
• Abercrombie & Fitch ($ANF): The retailer warned of headwinds for the year ahead, forecasting a potential $40 million hit from tariffs and additional pressure from the ongoing Middle East tensions.
• Bath & Body Works ($BBWI): Despite beating quarterly earnings expectations, the company gave a gloomy outlook, projecting a sales decline of up to 4.5% for the full year as it undergoes a business transformation.
• Coinbase ($COIN): Shares in the cryptocurrency exchange jumped 15% after former President Trump publicly sided with the crypto industry over traditional banks in a debate over digital currencies known as stablecoins.
• Amprius Technologies ($AMPX): The battery developer continues to see growing demand from the electric aviation and drone sectors for its high-density silicon-anode batteries, which offer more power for less weight.
• Moderna ($MRNA): The vaccine maker's stock rose after it settled a major lawsuit for a smaller sum than analysts had feared, resolving a key uncertainty for the company.
• Box ($BOX): The software company's shares jumped after it beat earnings and revenue expectations, betting that its new AI tools will help it retain customers and drive future growth.

Crypto Market Navigates Regulation and Innovation

The cryptocurrency sector is experiencing a period of intense change, marked by a significant push for regulatory clarity in the US and growing integration with the traditional financial system. This is happening alongside continued innovation and strategic pivots from major players.

Regulatory Crosshairs: SEC and FATF Draw Battle Lines

Two major developments signal that clearer rules are coming for the crypto industry:

• US Regulatory Framework: The US Securities and Exchange Commission (SEC) has submitted formal guidance to the White House on how securities laws apply to crypto assets. This is expected to create a 'token taxonomy' to clarify which digital assets are considered securities, a move that would have major implications for how exchanges and projects operate. Separately, the Commodity Futures Trading Commission (CFTC) plans to introduce rules for perpetual futures—popular crypto derivatives without an expiry date—within a month.
• Crackdown on Illicit Use: A report from the Financial Action Task Force (FATF), a global watchdog, identified stablecoins—digital currencies pegged to assets like the US dollar—as the primary vehicle for illicit crypto activity, accounting for 84% of the $154 billion in illicit transactions in 2025. The FATF is now recommending stricter anti-money laundering obligations for stablecoin issuers, including the ability to freeze wallets.

Bridging to Traditional Finance

While regulators tighten their grip, crypto firms are making major inroads into the mainstream financial system. In a landmark move, the crypto exchange Kraken has secured a Federal Reserve master account for its Wyoming banking arm. This gives it direct access to the Fed's payment system, allowing it to settle US dollar transfers without needing other banks, a significant step that could speed up transactions for its institutional clients.

This push for legitimacy is mirrored in consumer behaviour. Monthly spending via crypto cards surpassed $115 million in January, a sharp increase from $25 million the previous year, with strong growth seen across Europe, Asia, and Latin America.

Market and Project Updates

In the markets, Bitcoin rallied towards $72,000, supported by continued inflows into the new US spot Bitcoin ETFs. Elsewhere, major firms are adapting their strategies:

• Tether, the issuer of the world's largest stablecoin, is diversifying its business by investing in sleep-tech company Eight Sleep. The plan is to integrate Tether's AI platform to process personalised health data.
• Ripple is expanding its payments platform to provide a complete infrastructure for other companies wanting to issue their own stablecoins.
• Coinbase CEO Brian Armstrong admitted that the company's attempt to build social media features on its Base network "didn't quite work," signalling a strategic rethink for its consumer-facing ambitions.

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).