Shortly before the outbreak of the war with Iran, I wrote that the apparent calm among government officials and participants in financial markets was based on two assumptions that I viewed as unlikely:

That US President Donald Trump would strike a last-minute deal with the Iranians and declare victory,

And even if he did not reach such a deal, that the Iranians would not carry out everything they had threatened if attacked.

Now, three weeks into the conflict between the United States, Israel, and Iran, there has been no last-minute deal, and the Iranians have indeed carried out what they had warned of. Below is what I had previously noted regarding Iran’s threats:

These threats included attacking US bases in the region, targeting any country assisting the United States and Israel in the war, striking US warships, and most importantly, closing the Strait of Hormuz, through which around 20% of global oil and liquefied natural gas exports pass.

As I pointed out, that calm was likely to turn into panic in many world capitals. That has indeed happened. Governments and populations in Gulf states allied with the United States have come under direct attack from Iran in response to strikes carried out by Israel and the United States. Countries that rely on steady supplies of Gulf oil and gas are also seeking alternative sources and adapting to the sudden shortfall.

Since most other supplies of oil and liquefied natural gas are tied to long-term contracts, countries have turned to Russian oil and gas after US sanctions were lifted. However, Russia’s exports had already been circumventing sanctions, so any increase in supply is likely to be limited.

Despite all this, it remains puzzling that calm still dominates financial markets — except in the oil market. Equity markets have declined, but not collapsed. For example, the S&P 500 has fallen from 6,900 at the start of the war to around 6,500 on Friday, a level it had previously recorded on November 20 last year.

Agricultural commodity markets reflect rising input costs, but we have not yet seen a sharp increase in food prices. Gasoline and diesel prices have risen rapidly, yet the public has been repeatedly reassured that this is temporary.

Here is why I believe this market calm is misplaced:

1. The closure of the Strait of Hormuz and its impact

Iran has closed the Strait of Hormuz to all vessels except its own and those of friendly countries, and shipping traffic has become only a fraction of what it was before the war. The Trump administration did not expect the war to last this long, nor did it anticipate that Iran would close the strait, which explains the absence of a ready plan to keep it open.

The US military has suggested the possibility of taking control of Kharg Island, Iran’s main oil export terminal, to pressure Tehran into allowing shipping to resume. However, the island is not close to the strait, meaning a US presence there would not directly affect navigation, raising the possibility that such statements may be misleading.

The Iranian military has almost certainly planned in advance how to repel any force attempting to seize the island or land along the eastern coast of the strait, an area filled with caves and fortifications. It does not appear that a small force could hold or control such terrain.

So far, there is no indication that a large-scale ground invasion is being considered, an operation that would require months of preparation. If the strait remains closed for several months, it would almost certainly lead to a global recession.

It is also important to note that any attempt to take control of Kharg Island could result in the destruction of the oil terminal. Iran has already responded to attacks by striking energy facilities in Gulf states, and there are strong reasons to believe it would do the same if its oil infrastructure were targeted. Such damage could take years to repair.

Moreover, Iran does not need to control its coastline to threaten shipping, as it has demonstrated the ability to strike targets using drones and missiles from long distances. Even if US forces were to take full control of the coast, that would not eliminate the threat to shipping in the Gulf.

The Houthis in Yemen, allies of Iran, should also not be overlooked. They have previously disrupted shipping in the Red Sea and could open another front at any time, especially given their effective military capabilities.

2. The failure of the quick capitulation assumption

The Trump administration believed that heavy bombardment and targeted assassinations would lead to a rapid Iranian surrender, but that has not materialized. The bombing has continued without triggering regime collapse or internal uprising.

Any investor expecting such an outcome in the near term may have to wait much longer, while markets adjust to shortages in energy, fertilizers, chemicals, and disruptions in supply chains.

3. The illusion of a quick withdrawal

Some market participants believe that Trump could declare victory and withdraw. However, this appears difficult given the strong influence of pro-Israel supporters in the United States, as well as Israeli Prime Minister Benjamin Netanyahu, who is seeking to dismantle Iran’s nuclear program and destroy its missile capabilities.

Even if the United States were to withdraw, it would only fulfill one of Iran’s conditions for peace — the removal of US forces from the Gulf. Other demands, such as lifting sanctions, providing security guarantees, and offering compensation, are unlikely to be accepted.

Conclusion:

The closure of the Strait of Hormuz is already revealing its impact, including rising fuel prices and shortages of some critical supplies. There are also less visible effects, such as shortages of fertilizers and helium used in semiconductor manufacturing.

These pressures will continue as long as the strait remains closed. Even if it is suddenly reopened, returning to previous production levels could take months.

In other words, significant economic damage has already occurred, and its effects are likely to persist for a prolonged period.

Copper prices declined during Tuesday’s trading, weighed down by a stronger US dollar against most major currencies, in addition to rising oil prices, which cast a negative shadow over financial markets.

Copper inventories in China recorded their largest weekly drop this year, while prices had fallen sharply due to the Iran-related war, prompting stronger demand from manufacturers, according to a Bloomberg report on Monday.

Refined copper inventories across China declined by 78,700 tons in the week ending Monday, bringing total stockpiles to 486,200 tons, based on data from Mysteel Global cited by Bloomberg.

The firm said manufacturers increased their purchases after a rise in new orders, which boosted consumption.

Copper prices have declined about 12% this month on the London Metal Exchange, amid concerns that the conflict in the Middle East could drive inflation higher and slow global growth.

Demand also received additional support from restocking activity following the Lunar New Year holiday in late February, according to the report.

Yan Yuhao, a senior analyst at Zhejiang Hailiang, said the company had tripled its daily purchases of refined copper compared to last year’s average after domestic prices fell below 100,000 yuan per ton.

He added that many copper rod producers have full orders through next month and are considering operating above designed capacity.

Treatment charges for copper rods also increased last week, driven by stronger demand, according to Mysteel data.

In a related context, Ivanhoe Mines CEO Robert Friedland warned in remarks to the Financial Times that copper production in Africa could face significant disruptions if the Iran conflict continues for more than three weeks, due to the continent’s heavy reliance on sulfur supplies from the Middle East.

On the other hand, the dollar index rose by 0.4% to 99.3 points as of 14:44 GMT, after hitting a high of 99.5 points and a low of 99.1 points.

In US trading, copper futures for May delivery fell 0.7% to $5.43 per pound as of 14:09 GMT.

Bitcoin saw sharp movements over the weekend, falling notably amid escalating tensions in the Middle East and their impact on global markets, before rebounding on Monday in a move driven primarily by futures liquidations rather than increased demand in the spot market.

Some traders took advantage of this volatility to shift toward investments linked to Bitcoin infrastructure, such as the Bitcoin Hyper project, which announced raising more than $32 million through an initial coin offering.

These movements came alongside rising oil prices and turmoil in risk assets after US President Donald Trump issued a 48-hour ultimatum to Iran to reopen the Strait of Hormuz.

Despite later indications of a temporary pause in planned US strikes, any diplomatic progress remained unclear.

Geopolitics shakes markets

Bitcoin dropped from levels above $70,000 to around $67,360 before stabilizing near $70,500.

This decline coincided with escalating tensions around the Strait of Hormuz, a key passage through which about 20% of global oil supplies flow, and which has seen significant disruptions since late February.

In contrast, oil prices rose sharply, with US West Texas Intermediate crude approaching $101 per barrel and Brent crude climbing above $113, heightening inflation concerns.

Bitcoin’s decline also accelerated due to long position liquidations, with more than $240 million in leveraged positions liquidated within hours, indicating that the move was driven by macro factors rather than a structural shift in the long-term trend.

Recovery driven by futures, not spot demand

Despite the rebound on Monday, activity in the spot market remained weak, with monthly trading volumes on Binance falling to around $52 billion, the lowest level since the third quarter of 2023.

Flow data also showed weak participation, with seven-day inflows reaching $6.38 billion on Binance and $5.14 billion on Coinbase, among the weakest levels recently.

In contrast, activity among large investors was more pronounced, with “whale” inflows to exchanges increasing, pointing to greater hedging activity and capital rotation, which reinforces the market’s sensitivity to short-term volatility.

Bitcoin reached a weekly high of $71,789 during the US session, supported by signs of potential de-escalation, despite ongoing uncertainty.

However, this rise coincided with a roughly 4% decline in total open interest over 13 hours (equivalent to about 9,700 Bitcoin), indicating position closures rather than new position openings.

Short liquidations also exceeded $44 million within a single hour on Binance, while the US demand indicator remained weak, with trading concentrated in the $71,000 to $72,000 range.

Shift toward Bitcoin infrastructure

Amid this volatility, some capital is moving toward projects aimed at enhancing Bitcoin’s use cases, such as Bitcoin Hyper, which presents itself as a layer-two solution integrating technologies from other networks to accelerate transactions and reduce costs.

This trend reflects growing interest in building infrastructure to support the currency’s future use, at a time when macro factors — such as oil prices and geopolitical tensions — continue to drive price movements in the short term.

Oil prices rose on Tuesday amid continued disruption to global supply, as Iran denied holding any talks with the United States to end the war in the Gulf, contradicting statements by US President Donald Trump, who said a deal could be near.

Oil contracts had fallen more than 10% on Monday after Trump ordered a five-day delay in attacks on Iranian energy facilities, citing talks with unnamed Iranian officials that resulted in “major points of agreement.”

On Tuesday, however, Brent crude futures rose by $1.83, or 1.8%, to $101.77 per barrel as of 11:30 GMT, while US West Texas Intermediate crude gained $2.21, or 2.5%, to $90.34.

The war has led to a near-total disruption of shipments for about one-fifth of global oil and liquefied natural gas supplies through the Strait of Hormuz, causing what the International Energy Agency described as the largest disruption to oil supplies ever.

Nikos Tzabouras, an analyst at Tradu, a platform owned by Jefferies, said: “The reality on the ground has not changed. The Strait of Hormuz remains effectively closed, and supply disruptions continue, leading to tighter market conditions.”

In a field development, Iran launched waves of missiles toward Israel on Tuesday. Three senior Israeli officials — who requested anonymity — were quoted as saying that Trump appears determined to reach a deal, but they see it as unlikely that Iran will agree to US demands in any new round of negotiations.

BCA Research said in a report that “the conflict with Iran is witnessing initial de-escalation, but risks related to the Strait of Hormuz remain,” adding that “with continued risks of attacks and volatile news flow, it is still too early to take strong investment positions betting on lower oil prices.”

Macquarie noted that if the strait remains effectively closed through the end of April, Brent crude could reach $150 per barrel, exceeding its previous record high of $147 recorded in 2008.

In the latest attacks on energy infrastructure in the region, Iran’s Fars News Agency reported that a gas company office and a pressure-reduction station were bombed in the city of Isfahan, while a projectile struck a gas pipeline supplying a power plant in Khorramshahr.