Fears Mount Over Prolonged Middle East Conflict

For the week ending 13 March 2026

As of midday Friday, global equities were lower on the week. Meanwhile, the yield on the US 10-year Treasury note rose 6 basis points to 4.24%. Yields on the short end of the curve rose more as investors trimmed bets that the Fed will cut rates at all this year. The price of a barrel of West Texas Intermediate crude oil increased another $5 to $93.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), eased to 23.8 from 27.7.

IRAN CRISIS

Fears of protracted conflict grow

US President Donald Trump signaled Thursday that stopping Iran from acquiring a nuclear weapon is more important to him than controlling oil prices, a harder line than he had taken earlier in the week, when he suggested that the US had achieved many of its goals. Iran, for its part, has widened the war, attacking vessels in the Persian Gulf while potentially laying mines in the Strait of Hormuz. While the US has said it sees no evidence of that, British Defense Secretary John Healey said Thursday that it has “become clearer and clearer” that Iran may have begun laying mines. Muddying the picture, there are also reports that Iran is allowing tankers bound for “friendly” countries to continue passing through the Strait, suggesting it has not been physically closed. US Central Command said Thursday that more than 60 Iranian ships had been destroyed or severely damaged, including at least 30 mine-laying vessels. That same day, US Treasury Secretary Scott Bessent said that the US will initiate naval escorts in the Strait as soon as militarily possible. Oil prices remain volatile, with WTI crude nearing $120 per barrel in early-Monday trade then easing to $77 on Tuesday before pushing higher again later in the week due to mining fears and the Iranian attacks on ships in the Gulf.

On Wednesday, Bloomberg reported that Iran told regional intermediaries that in return for a ceasefire, the US must guarantee that neither it nor Israel will strike the country in the future. Iran is particularly concerned that Israel will attack again after the current war ends and wants both international guarantees against future aggression as well as reparations.

On Thursday, new Iranian Supreme Leader Mojtaba Khamenei said that the Strait of Hormuz should remain closed and that Iran may open new fronts in the war — further signs that the conflict is unlikely to end soon.

In real terms, adjusted by the cumulative impact of inflation, Bloomberg reports that oil is still well below previous price spikes. The $139-per-barrel reached in March 2022 after Russia invaded Ukraine is about $157 in today’s money, while the $147.50-per-barrel peak in July 2008 would be equivalent to about $205 per barrel now. It’s also worth noting that developed economies are significantly less energy intensive than they were during earlier energy shocks, such as those in the 1970s.

IEA countries release oil reserves

The member countries of the International Energy Agency will release 400 million barrels of oil from their reserves — the largest distribution in its history. The US portion will reportedly total 172 million barrels. Altogether, this release is equivalent to approximately 20 days of typical production from the Persian Gulf. Meanwhile, the White House is said to be considering suspending the Jones Act, which requires that only US-flagged ships (of which there are few) transport goods between US ports. Suspending this law would allow foreign ships to move fuel and food between different parts of the country. Additionally, to stabilize oil prices further, the US has lifted some of its sanctions on Russian oil.

MACRO NEWS

US announces Section 301 probes

In reaction to the US Supreme Court ruling against the Trump administration’s use of IEEPA tariffs, the US Trade Representative has opened investigations regarding the trade policies of over 60 countries under Section 301 of the Trade Act of 1974. These investigations will focus on structural excess manufacturing capacity and unfair trade practices. It is expected that these probes, which will take place within the 150 days allowed under the present Section 122 tariffs, will result in duties that largely replicate the original tariffs levied under IEEPA on Liberation Day in 2025.

Q4 US GDP revised lower

The US economy grew even more slowly than initially reported in the fourth quarter of 2025: just 0.7% on an annualized basis, down from an earlier 1.4% reading, the US Commerce Department reported Friday. The record-longest government shutdown was the biggest factor, subtracting more than 1% from the total. Also reported Friday, core PCE inflation edged up to 3.1% in January from 3% in December, in line with expectations. Growth is expected to bounce back in Q1, though unusually harsh winter weather across much of the country could temper the rebound.

QUICK HITS

Fewer than 1 in 10 CEOs of large US companies plan to cut jobs due to AI in 2026, according to a new survey from consultancy KPMG. In fact, 55% expect to increase hiring in 2026 as a direct result of AI, while 36% expect no change.

Through the first five months of the fiscal year, the US budget deficit reached $1 trillion, a 12% year-over-year decline.

The private credit market is facing pressure from scrutiny over the value of its illiquid loans. This week, several funds capped withdrawals as investors sought to liquidate exposures. Funds are grappling with a wave of redemption requests amid growing concerns over the quality of their loans, particularly to software companies under threat from artificial intelligence.

US existing homes sales rose 1.7% in February. Unsold inventory stands at 3.8 months of supply. The median existing home prices rose 0.3% to $398,000.

Due to the conflict in Iran, eurozone investor confidence sank in March from 7.3 points to -3.1.

The US trade deficit narrowed to $54.5 billion in January from $72.9 billion in December.

The Canadian economy lost 83,900 jobs in February as the unemployment rate rose to 6.7% from 6.6%.

Japanese real wages increased 1.4% year-over-year in January, exceeding economists’ median forecast of a 0.9% gain, the country’s labor ministry reported Monday. This gain comes after real wages fell every month in 2025, and it was the fastest increase since May 2021.

The Bank of Korea reported Tuesday that the South Korean economy expanded 1% in 2025 amid strong exports but contracted 0.2% in the fourth quarter.

US Senator Thom Tillis (R-NC) met this week with Kevin Warsh, President Trump’s nominee to replace Jerome Powell as chair of the Federal Reserve. Tillis said Warsh has “impeccable” credentials but that he won’t vote to advance Warsh’s nomination until the US Department of Justice drops its probe of Powell. Senator Tim Scott, chair of the Senate Banking Committee, said he hopes the investigation “goes away” so that his committee can take up Warsh’s nomination soon.

THE WEEK AHEAD

Monday: US industrial production; Canada CPI

Tuesday: Reserve Bank of Australia meeting; US pending home sales

Wednesday: Japan trade balance; eurozone CPI; US Fed meeting; PPI, durable goods orders; Bank of Canada meeting

Thursday: Japan industrial production; UK unemployment; Bank of England meeting; European Central Bank meeting; US new home sales

Friday: Eurozone trade balance; Canadian retail sales

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.