Oil Price Moves from Israel-Iran Conflict Likely to Shape Stock Market Direction – Citi

Citigroup analysts say the trajectory of oil prices will be a key factor driving stock market performance in the near term as investors monitor escalating violence in the Middle East.

In a client note, Citi highlighted that geopolitical flare-ups like the Israel-Iran conflict generally cause only short-lived impacts on equities unless they trigger sustained spikes in energy prices. The firm noted that if tensions continue to escalate, sectors likely to outperform include European energy stocks, traditional defensive sectors, and markets such as Switzerland and the UK.

The analysts pointed out that before the recent escalation, global equity valuations had priced in an average level of “geoeconomic risk,” suggesting some resilience to shocks.

On Wednesday, oil prices eased slightly, retracing part of the previous day’s 4% gain, as markets balanced concerns over potential crude supply disruptions against an impending U.S. Federal Reserve interest rate decision.

• Brent crude futures slipped 0.3% to $76.20 a barrel but remained above the $76 level for a second day.
• West Texas Intermediate (WTI) crude also fell 0.3%, settling near $73.02 per barrel by early U.S. trading.

U.S. stock futures were trading higher amid the cautious sentiment.

Meanwhile, Israel’s air force announced strikes targeting centrifuge and weapons manufacturing facilities near Tehran, part of an ongoing campaign aimed at curbing Iran’s nuclear weapons and missile programs.

The conflict has intensified since Israel’s airstrikes on Iranian nuclear sites last Friday, sparking retaliatory missile attacks and casualties on both sides.

U.S. involvement remains a critical focus. Former President Donald Trump has demanded an “UNCONDITIONAL SURRENDER” from Iran, describing Iran’s Supreme Leader Ayatollah Khamenei as an “easy target” and indicating U.S. support for Israel’s air dominance over Iran.

U.S. Vice President J.D. Vance clarified that Trump’s military actions would be aligned with American interests, though the president could still decide to take further steps to prevent Iran’s uranium enrichment.