The first casualty of war is often certainty. The second, increasingly, appears to be financial markets. President Donald Trump may have declared that the memorandum of understanding with Iran is “over”, but perhaps the more relevant question is whether markets ever believed it was truly beginning.
The reaction was immediate. Oil surged more than 5pc. US Treasury yields climbed to one-month highs. The VIX jumped sharply. Global equities retreated. The dollar strengthened as investors once again sought liquidity over risk. At the time of writing, markets were also awaiting the minutes of the Federal Reserve’s latest meeting, looking for clues about how policymakers might respond if another energy-driven inflation shock complicates the outlook further.
Could all this be telling us something?
Financial markets have spent months behaving as though the Middle East now comes with an on-off switch. Ceasefire announced? Sell oil, buy equities, rotate into risk. Missile strikes resume? Buy crude, dump stocks, buy dollars. It has become almost mechanical.
Perhaps that is exactly the problem.
For years, investors spoke of the Greenspan Put, the Bernanke Put and, more recently, the Powell Put. The idea was simple enough. Whenever markets came under sufficient pressure, the Federal Reserve would eventually ease financial conditions. Investors believed there was a safety net.
Now another “put” seems to be emerging, although it works rather differently.
Call it the Hormuz Put.
The irony is deliberate. The Strait of Hormuz is not rescuing markets. It is repeatedly tightening financial conditions instead.
Every fresh threat to shipping through one of the world’s most important energy corridors immediately pushes the same sequence into motion. Oil prices rise. Inflation expectations follow. Bond yields climb. Volatility returns. The dollar strengthens. Equities retreat. Emerging-market assets come under pressure.
The Strait is not setting interest rates. Yet it keeps moving the very variables central banks themselves must respond to.
Has a narrow stretch of water quietly become one of the world’s most influential monetary signals?
That may sound like an exaggeration until one considers how little it now takes to move markets. Iran does not necessarily have to close Hormuz. It may only have to convince traders that disruption is once again plausible. Risk premiums begin rising long before supply is actually interrupted.
That distinction matters.
Oil has a habit of leaking into almost every other price in the economy. Freight becomes more expensive. Fertiliser costs rise. Airlines face higher fuel bills. Manufacturing margins come under pressure. Inflation expectations begin shifting before official inflation data has even had time to react.
Central banks eventually follow.
The latest market reaction illustrates precisely that transmission mechanism. Treasury yields rose as investors reassessed inflation risks. European government bond yields followed. The VIX registered its biggest daily increase in more than a month. Safe-haven demand returned to the US dollar, while equities, particularly richly valued technology shares, came under renewed pressure.
Is that really a response to missiles? Or is it a response to what those missiles imply for inflation, monetary policy and the cost of capital? It matters because markets increasingly appear to be treating geopolitical headlines as macroeconomic data.
Every central bank watches inflation.
Increasingly, inflation appears to be watching Hormuz.
Perhaps that explains why markets now seem remarkably willing to react first and ask questions later. Traders no longer appear to be pricing only physical disruptions to oil supply. They are pricing the possibility that central banks may once again find themselves confronting inflation risks they thought were fading only weeks ago.
Could that become the defining feature of this phase of the conflict?
There is another irony buried beneath the price action.
Markets have become remarkably sophisticated at pricing quarterly earnings, employment reports and inflation releases. Yet they continue behaving as though geopolitical risk can be switched on and off with every presidential statement.
One day, diplomacy appears to have restored stability. The next, a handful of attacks around Hormuz sends the same markets scrambling back into defensive positions.
Was the peace ever being priced? Or merely the absence of headlines?
For countries that import most of their energy, those questions carry consequences extending far beyond trading desks.
Pakistan knows this cycle well. Every sustained rise in oil prices eventually filters into the import bill, inflation outlook, exchange rate and fiscal arithmetic. The same chain of events affects much of Asia. Governments cannot afford to trade energy security the way markets trade futures contracts.
Perhaps that is where the real lesson lies.
Markets are designed to price probabilities. Governments are supposed to prepare for vulnerabilities.
If another ceasefire eventually emerges, markets will almost certainly celebrate once again. Oil will fall. Risk appetite will return. Bond yields may retreat. VIX will settle.
But should policymakers allow themselves the same optimism?
History suggests that financial markets rarely wait for certainty. They move on probabilities, perceptions and narratives. Governments have a more difficult task. They must prepare for outcomes they hope never materialise.
Trump says it is over.
Markets seem unsure.
Perhaps the better question is whether anyone should still be asking whether the memorandum is over, or whether attention should instead be focused on something far more important.
Has the Strait of Hormuz quietly become one of the world’s most powerful drivers of global financial conditions? And if every new confrontation tightens those conditions before a single central banker says a word, who, exactly, is setting the tone for markets now?
Copyright Business Recorder, 2026
The writer can be reached at jafry.shahab@gmail.com