The potential blocking or disruption of traffic through the Strait of Hormuz, a crucial narrow passage connecting the Persian Gulf to the Arabian Sea, poses significant global and regional impacts, especially for India's energy security. Following the US bombing of three major Iranian nuclear sites (Fordow, Natanz, and Isfahan), Tehran has indicated that closing the Strait of Hormuz is an option to pressure adversaries. This strategic choke point is vital, as nearly 30 percent of global oil and a third of the world's liquefied natural gas (LNG) pass through it daily.

Experts warn that a closure would immediately reduce global supplies, triggering a sharp spike in prices. Dr. Laxman Kumar Behera, Associate Professor at the Special Centre for National Security Studies at Jawaharlal Nehru University, emphasized that any disruption in this critical shipping lane would majorly impact India's crude oil imports, particularly from Iraq and Saudi Arabia. Captain D K Sharma, a former Indian Navy spokesperson, highlighted that Iran's threat could lead to significant disruptions in global oil trade, increased insurance premiums, and costlier rerouting of oil shipments. Oil prices are projected to surge, with some analysts predicting prices to reach USD 80-90 per barrel, or even USD 100 per barrel, if Iran retaliates.

The International Energy Agency's analysis concurs, stating that even a brief disruption through the Strait of Hormuz would significantly impact oil markets, keeping oil supply security high on the international energy policy agenda. While the US declared the strike on Iranian nuclear sites a 'spectacular military success,' Iran has maintained that closing the Strait is an option on the table, depending on how other players respond. However, Iran would also face severe economic consequences if it were to shut down the Strait, as such a move would cripple its exports.

The heightened tensions have sent ripples through global financial markets, with investors preparing for a sharp market selloff, particularly when U.S. stock markets open. Fears of retaliation from Tehran and rising energy prices are expected to weigh heavily on equity markets. The unfolding Middle East crisis is set to dominate trading, overshadowing typical economic data releases like U.S. business activity, home sales, and inflation figures. Investors are keenly observing how President Donald Trump's decision to support Israel's military action against Iran might influence market sentiment, drive up inflation, and impact the Federal Reserve's policy decisions regarding interest rate cuts.

The S&P 500, which had been trending near its February highs, is now facing potential negative reactions. The key concern is how higher oil prices will feed into overall inflation, influencing the Federal Reserve's plan for rate cuts. While the Fed recently held its key interest rate steady, policymakers cited the potential for higher inflation, partly due to tariff policies. Sonu Varghese, global macro strategist at Carson Group, underscored this, stating that the question revolves around oil prices' impact on inflation and, consequently, on monetary policy and how long the Fed will keep rates 'meaningfully restrictive.'

Despite the immediate concerns, some investors anticipate a short-term flight to safe-haven assets like the U.S. dollar and Treasury securities, while others see the possibility of the crisis de-escalating quickly. Mark Malek, chief investment officer of Siebert Financial, suggested that the strike might be a 'one-and-done event' rather than a prolonged conflict, which could be positive for the stock market. Meanwhile, U.S. consumer confidence had recently dropped due to fears of tariffs and rising prices, but investors were hoping for a rebound before the recent escalation. Upcoming economic reports, including U.S. business activity, housing sales, consumer confidence, and the Personal Consumption Expenditures Price Index, will still be watched, though potentially overshadowed by geopolitical developments.