Yesterday (Mon 3/23), the White House said it would hold off on striking Iranian power plants for five days, pointing to “productive conversations” about ending the war. Stocks jumped and oil prices fell on the news. Iran says no formal talks are happening, but the delay replaced a deadline that was hours from expiring. We do not know yet if this leads to a real deal or just a pause. But for the first time in three weeks, there is a believable path toward winding this down.
What Three Weeks of War Have Done
Since the U.S. and Israel began striking Iran on February 28, the conflict has turned into the biggest disruption to the world’s energy supply since the 1970s. Iran fought back by hitting oil refineries, natural gas plants, and shipping terminals across six neighboring countries. The head of the International Energy Agency said Monday that at least 40 energy sites in nine countries have been severely damaged. Roughly 10 million barrels of oil per day have been knocked offline. Qatar’s Ras Laffan, the world’s largest natural gas export facility, was hit and completely shut down. Repairs could take years.
The Strait of Hormuz, a narrow waterway that normally carries about 20% of the world’s oil, has been closed to most shipping since March 2. Insurance companies stopped covering ships going through it, so most companies stopped sending them. About 500 oil tankers and 130 cargo ships are stuck waiting in the Gulf. Oil has gone from around $70 a barrel before the war to above $100, peaking near $126. Gas at the pump has climbed from $2.98 to $3.96 a gallon.
It’s Not Just Oil
The war has disrupted things most people would not connect to the Middle East. When Qatar’s gas facility shut down, it also took about 20% of the world’s natural gas exports and 30% of the world’s helium supply with it. Helium is used to cool computer chips during manufacturing, and chipmakers in South Korea and Taiwan are already running low. The Gulf also produces about half the world’s urea, which is the most common fertilizer used in farming. Fertilizer prices are up 35 to 40%, and that is hitting right as farmers need to plant spring crops. If this goes on much longer, food prices could rise later this year. Aluminum, industrial chemicals, and sulfur (used in batteries and many other products) are also affected. Some of this damage will take time to fix even after the fighting stops.
Two Very Different Paths from Here
We do not know how or when this ends. But yesterday narrowed the range of what is likely, and that is a good thing for investors.
If talks work and the Strait reopens in the coming days or weeks, oil prices could drop quickly back toward $70 to $80 and the stock market potentially could rally hard. That kind of bounce happens fast and without much warning. Investors who sold and moved to the sidelines usually miss it.
If the war drags on, oil could stay high and the effects on food, chemicals, and chips would get worse over time. Growth could slow. But even in that case, the U.S. came into this crisis in good shape. We produce more oil and gas than any country in the world, the job market is solid, and 32 countries have released a record amount of oil from emergency reserves to help fill the gap.
What the Fed Is Likely to Do
The Fed kept interest rates unchanged at its March meeting. The nominee to be the next Fed Chair, Kevin Warsh, has a clear view on situations like this. He sees oil price spikes caused by war as temporary shocks, not the kind of lasting inflation the Fed needs to fight with higher rates. If confirmed, he would likely lean toward cutting rates to help the economy. He has talked before about also shrinking the Fed’s holdings of bonds to offset the rate cuts, but the Fed has already reduced those holdings close to the minimum level that banks need to operate day to day. Going further would require changing banking rules first, which is not quick. So the main tool available right now is cutting rates, and Warsh’s instinct is to use it.
He has also argued that advances in AI could boost productivity enough to keep prices in check, similar to how the internet kept inflation low in the late 1990s. If he is right, the Fed would have room to cut rates without sparking broader price increases. The risk to watch: if people and businesses start expecting prices across the board to stay high (not just gas, but groceries, rent, everything) the Fed would need to respond more firmly. That hasn’t happened so far.
The Bottom Line
This conflict has done real damage, and some of it will take time to repair no matter when a ceasefire comes. We are not dismissing how serious this is. But the pressure on both sides to find a way out is building. The Strait could reopen this week. And when this conflict does end, the drop in oil prices and the bounce in stocks could happen quickly. The stock market is down about 5% from January highs. The U.S. economy is in good shape. The Fed looks ready to be supportive.
If you want to talk through how this affects your situation, please reach out. We are here for you.
Disclosure:
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.