The geopolitical tensions in the Middle East escalated sharply over the weekend, triggering a brief fluctuation in global risk assets and commodity markets at Monday's opening, followed by a stalemate in trends.
Due to the intense verbal exchanges between the conflicting parties over the weekend, and with U.S. President Trump’s 48-hour ultimatum set to expire on Monday evening Eastern Time, crude oil prices initially surged, while U.S. stock futures saw a significant decline.
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However, after the initial reactive response, both oil prices and stock index futures recovered some of their volatility, currently hovering near the flatline, highlighting the market's deep hesitation and entanglement in assessing the duration of the war and its potential economic consequences.
Following the decline in U.S. stocks on Friday, Asian markets plummeted on Monday. The Nikkei 225 index saw its intraday decline widen to 4%, and the Korea Exchange activated the KOSPI index circuit breaker after the KOSPI 200 futures dropped by 5%, pausing program trading for 5 minutes.
Goldman Sachs trader Shreeti Kapa stated, the market has begun to reflect the inflation risks brought about by this temporary energy shock, but has not yet truly reflected the growth downside risks from long-term shocks. This contrasts sharply with the energy shocks of 2022, as the market still tends to believe that the war and energy disruptions will be relatively short-lived.
<h2>Market Performance Stabilizes After Fluctuations at Monday's Opening</h2>
Over the weekend, the Middle East conflict experienced a dramatic shift from &#34;de-escalation&#34; to threats and rhetoric of &#34;total destruction.&#34;
According to CCTV News, on March 21 local time, U.S. President Trump posted on the social platform &#34;Truth Social,&#34; demanding that Iran fully open the Strait of Hormuz within 48 hours, or the U.S. would strike and destroy various power plants within Iran, &#34;the largest of which will be the first target.&#34;
In the early hours of the 22nd, the Iranian Armed Forces' Khatam al-Anbiya Central Command warned that, based on previous warnings, if Iran's fuel and energy infrastructure were attacked, all energy infrastructure, information technology systems, and desalination facilities of the U.S. and its allies in the region would become targets.
On Monday, the Asian market reacted sharply. WTI crude oil briefly returned above $100 at the start but then retreated from its opening high; Brent crude also saw a slight decline from Friday's high.
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In the stock market, U.S. stock index futures fell about 1% to 1.5% from Friday's after-hours high at one point in the morning, but the decline narrowed, and they are currently roughly flat. The 10-year U.S. Treasury futures fell, with implied yields rising by about 4 to 5 basis points. Additionally, gold prices remained around $4,500, while Bitcoin continued to decline throughout the weekend, currently falling below $68,000
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<h2>Goldman Sachs: Everything Depends on How Long the War Lasts</h2>
According to Goldman Sachs Kapa's analysis, the core contradiction in current market pricing is: the market has largely digested the interest rate shock, but the pricing of growth risks remains limited. This contrasts with the situation during the energy shock in 2022—when real yields rose sharply from negative values, leading to a larger-scale negative interest rate shock.
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The current market's implied assumption is that the war and the resulting energy supply disruptions will be relatively short-lived. Once this judgment is proven false, if the persistence of rising energy prices exceeds expectations, the market will have to reprice for a greater downward adjustment in global growth and corporate earnings, and global stock markets will face more significant pullback pressures.
According to Bloomberg macro strategist Michael Ball, the rise in energy costs has an inflationary effect, equivalent to taxing consumers, corporate profit margins, and market confidence simultaneously. This also explains why major central banks released stronger signals this week—prompting the market to quickly price in tightening expectations from the European Central Bank and the Bank of England, while completely erasing the Federal Reserve's rate cut expectations for this year, even leading to bets on a rate hike by the Federal Reserve.

Central banks do not want to repeat the mistakes of 2021 and 2022, where slow action and misjudgment of the intensity and duration of inflation led to rate hikes. However, as economic growth slows and the labor market becomes more relaxed, the difficulty of raising rates also increases, especially since the financial environment often tightens before the first rate hike is actually implemented.
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Kapa points out that the current interest rate market has begun to show this tension: the narrative of repricing at the front end has overshadowed the clean duration sell-off, and concerns about policy missteps are beginning to emerge. Hawkish statements can quickly push up two-year yields, but convincing the long end that the economy can withstand another complete tightening cycle on top of the ongoing energy shock is much more difficult.
<h2>Strait of Hormuz: The Only Variable in Market Pricing</h2>
The current situation boils down to one core question: How long will the Strait of Hormuz be closed?
The answer to this question determines whether tankers can pass safely, whether oil flows can return to pre-conflict levels, and the credibility and sustainability of any ceasefire agreements. **Kapa points out that the core dilemma of binary risks is that traditional diversification investments are almost powerless against this—single exogenous events can reprice all assets simultaneously, and diversification cannot hedge against this risk
**
In this context, Kapa suggests that investors shift the focus of portfolio management from optimizing allocation to structural layout around outcome trees: overweighting energy, defense, defensive sectors, and high-quality assets in the &#34;prolonged conflict&#34; scenario; overweighting high beta, cyclical, and interest rate-sensitive assets in the &#34;quick resolution&#34; scenario; while also reducing total exposure rather than just adjusting net exposure, as in a binary risk environment, the correctness of directional judgment is far less important than position management.
Kapa concludes that a binary risk environment rewards liquidity and flexibility rather than directional judgment. Investors who perform well in such situations are often not those who accurately identify the bottom, but those who hold cash and can act quickly when uncertainty dissipates. Given that the current global equity risk premium is close to zero and valuations across regions and sectors are at historical highs, holding cash is actually a reasonable asymmetric position—sacrificing almost no expected return while gaining significant flexibility

With Trump's ultimatum, the situation in the Middle East has shifted dramatically again, changing from "easing" on Friday to "escalating threats." Crude oil prices surged at the beginning of trading, while U.S. stock futures fell over 1%, before both recovered some of their volatility and stabilized. The stock markets in Japan and South Korea continued the downward trend of U.S. stocks from Friday. Goldman Sachs pointed out that the market has begun to reflect the inflation risks brought by this temporary energy shock, but has not yet truly reflected the growth downside risks brought by long-term shocks

- Tensions in Middle Eastern geopolitics surged over the weekend, causing brief volatility in global risk assets and commodities on Monday.  
- Oil prices initially soared due to threats from President Trump regarding Iran but stabilized as markets assessed the potential duration and economic impact of the conflict.  
- Goldman Sachs suggested that the market's current pricing reflects limited long-term growth risks, emphasizing the importance of the duration of any blockade of the Strait of Hormuz on oil supply recovery.

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Trump's "ultimatum" has 24 hours left, and global stock markets and oil prices opened on Monday in a state of "confusion."