The conflict in the Middle East, which began at the end of February, completed its first month. Markets seesawed; volatility increased sharply amid mixed messages from President Trump; and energy prices soared following the near-closure of the crucial Strait of Hormuz.
- The oil price rose by over 94% during Q1
- Many central banks left interest rates on hold
- Q4 2025 US economic growth was revised down to 0.7%
Market volatility: the conflict in the Middle East, which began at the end of February, completed its first month. Markets seesawed; volatility increased sharply amid mixed messages from President Trump; and energy prices soared following the near-closure of the crucial Strait of Hormuz. While the Dow Jones Industrial Average Index fell by 5.4% during March, Germany’s Dax Index dropped by 10.3%, and Japan’s Nikkei 225 Index plummeted by 13.2%.
“‘The largest supply disruption in the history of the global oil market’” (IEA)
Energy prices surged: the International Energy Agency warned that interruptions to flows through the Strait were “creating the largest supply disruption in the history of the global oil market”, and announced that its members would release a record 400 million barrels of oil in a bid to mitigate challenges “unprecedented in scale”. Over March, the price of Brent crude oil climbed by 63.3%, ending the month at US$118.35 per barrel. During the first quarter of 2026, the oil price surged by more than 94%.
US growth revised down: US economic growth over the final three months of 2025 was adjusted down from 1.4% to just 0.7%, reflecting revisions to export activity, consumer and government spending, and investment. The annualised rate of inflation in the US remained at 2.4% in February, but did not reflect the impact of the Middle East conflict. By the end of March, the price of gasoline in the US had breached US$4 per gallon for the first time since 2022. Federal Reserve (Fed) policymakers voted to maintain the key federal funds rate at a range of 3.5% to 3.75%, and raised their year-end inflation forecast from 2.4% to 2.7%. Fed Chair Jerome Powell warned that the economic effects of the war “could be bigger, they could be smaller … we just don’t know.”
Interest rates on hold: alongside the Fed, the European Central Bank (ECB) , the Bank of England , the Bank of Japan , the Swiss National Bank , the Bank of Canada , and the Swedish Riksbank all elected to leave their key interest rates unchanged. ECB President Christine Lagarde confirmed that policymakers were ready to tighten monetary policy if the Middle East war drives up inflationary pressures, saying: “We will not be paralysed by hesitation.” Meanwhile, the Reserve Bank of Australia opted to implement a quarter-point increase, taking its interest rate to 4.1%.
To view the series of market updates through March, click here
