US-Israel-Iran conflict: 14% oil spike bigger than 2022 Ukraine shock, says expert

Global financial markets are facing a significant shock as escalating tensions involving Iran send oil prices sharply higher and trigger broad-based risk aversion, according to Robin Brooks, Senior Fellow at the Brookings Institution.

Brooks noted that Brent crude has climbed 14% since Friday, describing the move as a “stunning” surge. At the same time, the US dollar has strengthened in what he termed a disorderly fashion as investors rush toward safe-haven assets. Even gold, typically a refuge during geopolitical crises, has weakened against the dollar, underscoring the scale of the currency move. He characterised the developments as a major shock to global markets.

Brooks argued that markets often understate the significance of unexpected events. In his view, there is a psychological tendency among analysts to downplay surprises because acknowledging them implies having failed to anticipate the risk. As a result, commentary frequently seeks to minimise the magnitude of shocks rather than confront them directly.

He pointed to recent analysis suggesting that the latest oil price spike ranks only as the 73rd largest since 1988, questioning the usefulness of such comparisons. Instead, Brooks benchmarked the current turmoil against Russia’s invasion of Ukraine on February 24, 2022 — an event that severely disrupted global energy markets given Russia’s status as a major oil producer exporting around seven million barrels per day.

By comparison, he noted that the latest surge in Brent crude — more than 7% in a single session — was over three times larger than the roughly 2% rise recorded on the day Russia invaded Ukraine. With approximately 20 million barrels of oil passing daily through the Strait of Hormuz, the scale of potential disruption in the current crisis could exceed that of 2022.

Brooks analysed six market indicators in event time, comparing price action around the Ukraine invasion with recent movements. The data included Brent crude, the S&P 500, the US dollar against G10 and emerging market currencies, the Brazilian real, and gold prices. Each series was indexed to 100 on the day preceding the respective shock to allow for direct comparison.

The contrast, he said, is striking. While the S&P 500 remained largely flat during the latest episode, it had gained around 2% on the day Russia invaded Ukraine, suggesting investors are more cautious this time. The dollar’s rally against both G10 and emerging market currencies signals a pronounced shift into risk-off mode.

Gold’s behaviour also differs markedly from 2022. Whereas gold fell on February 24, 2022, it rallied in the current episode, reflecting its evolving role as a hedge against currency debasement and geopolitical fragmentation.

Emerging markets showed a mixed response. The Brazilian real weakened about 1% — less severe than its more than 2% drop in 2022. Brooks suggested this could indicate that investors are already considering the potential benefits to commodity-exporting economies such as Brazil from higher oil and raw material prices. In 2022, markets took nearly two weeks to price in those dynamics.

The overarching conclusion, Brooks argued, is that the present turmoil represents a substantial shock to global markets — and one that carries the risk of further escalation.