Daily Observation 2026-03-23

Note

Tensions in the Middle East continue to escalate. The conflict is no longer confined to conventional military strikes. It has expanded further into critical infrastructure, including power grids, energy facilities, water systems, and maritime routes. Iran has stated that if the United States strikes its power grid, it will retaliate against the energy and water systems of Gulf states, while also signaling that the Strait of Hormuz will remain closed. At the same time, the United States is continuing to deploy additional forces to the region, while Israel has carried out a new round of large-scale strikes on military-related facilities in Tehran. Regional tensions have clearly moved to a higher level.

Disruptions in the energy sphere are also widening. The U.S. government has announced loans of crude oil from the Strategic Petroleum Reserve and granted a temporary sanctions waiver for certain seaborne transactions involving Iranian oil. Iraq has declared force majeure on all oilfields operated by foreign companies, stating that international partners are unable to assign tankers for crude loading, and some affected areas have been ordered to halt production. Britain has also been reported to have deployed a nuclear-powered submarine with long-range strike capability to the Arabian Sea. The G7 and the European Union later stated that they stand ready to take necessary measures to support global energy supply and again emphasized the importance of safeguarding maritime routes, including the Strait of Hormuz.

On the U.S. policy side, new signals have also emerged. Treasury Secretary Bessent said the government has sufficient funds to support military operations against Iran and is seeking supplemental appropriations from Congress to ensure future military supply, while ruling out tax increases as a financing method. In monetary policy, the tone from Federal Reserve officials has become noticeably more cautious. Waller said that as the Iran war escalates, the risk of persistent inflation is rising, making him more inclined to support holding rates steady. Bowman said it is still too early to judge the longer-term implications of the conflict for U.S. economic activity and the policy path, but future policy meetings will inevitably have to incorporate these variables. Market pricing for the year-end rate path has also begun to adjust.

From a financial market perspective, the significance of these developments lies in the fact that they force a broader reassessment of risk, liquidity, and valuation benchmarks. When geopolitical conflict spreads into energy, shipping, and critical infrastructure, markets tend to interpret it as a signal of rising systemic risk. Capital allocation begins to shift accordingly, and investor judgments around future growth, inflation, policy direction, and cross-asset linkages also start to change. This kind of adjustment does not remain at the level of sentiment alone. It gradually enters the pricing framework itself.

For major assets, the pressure on SPX comes mainly from two directions: a reassessment of the growth environment and a repricing toward higher-for-longer rates. When geopolitical risk, energy uncertainty, and a more cautious policy tone converge, the valuation backdrop for equities becomes tighter, especially for high-duration and highly valued sectors. By contrast, energy, defense, and utilities tend to show relatively greater resilience.

DXY is more likely to remain supported in this environment. The logic is not only traditional safe-haven demand. It also reflects a more cautious Fed path, the relative energy resilience of the United States, and the tendency for global capital to concentrate in dollar assets during periods of uncertainty. When markets begin to reduce rate-cut expectations and reintroduce the possibility of higher rates for longer, the dollar generally retains relative strength.

US02Y and US10Y reflect different parts of the repricing process. US02Y is more directly tied to policy rate expectations and is therefore more sensitive to shifts in Fed communication. As long as markets continue to scale back easing expectations, the front end is more likely to stay elevated. US10Y, meanwhile, reflects not only the policy path but also longer-term inflation expectations, fiscal financing needs, and term premium. When war, fiscal spending, and energy risk all enter the market narrative at the same time, the pricing basis for the long end also changes.

In commodities, UKOIL and USOIL are the most directly exposed assets. The market’s reassessment of Middle East supply, maritime routes, and regional export capacity continues to sustain a higher risk premium in crude. UKOIL tends to reflect global shipping and Middle East supply risk more directly, while USOIL is also shaped by domestic U.S. supply-demand and inventory conditions. When the market is trading uncertainty around global exports and shipping routes, Brent usually shows stronger sensitivity.

GOLD sits in a more complex position. On one side, war escalation and systemic risk provide safe-haven support. On the other, a stronger dollar and firmer rate expectations create a restraining force. In other words, gold does not necessarily rise in a straight line during every geopolitical conflict. It tends to trade between risk premium and rate pressure. When the latter dominates, gold’s performance is constrained. Only if the conflict evolves into a deeper financial stability issue does gold’s haven role become more likely to expand.

Overall, the market structure implied by this set of events is relatively clear: risk assets face pressure, the dollar remains firm, front-end and long-end yields reprice higher, crude retains a substantial geopolitical premium, and gold fluctuates between safe-haven demand and the constraint of a strong dollar and high rates. What markets are pricing is no longer just the Middle East conflict itself, but a broader structure involving energy security, the inflation path, fiscal constraints, and the global liquidity order.

Market

	CLOSE
SPX	6506.48
DXY	99.503
US10Y	4.384%
US02Y	3.907%
UKOIL	109.56
USOIL	98.10
GOLD	4491.670

2026-03-20T09:00Z/2026-03-22T23:00Z