Trump's "ultimatum" has 24 hours left; global stock markets and oil prices were "tangled" at Monday's opening.

The geopolitical tensions in the Middle East soared suddenly over the weekend, triggering brief turmoil in global risk assets and commodity markets at Monday’s opening, after which performances became stalemated.

Due to intense verbal clashes between the parties in conflict over the weekend, and the looming 48-hour ultimatum issued by U.S. President Trump, which was set to expire Monday evening Eastern Time, oil prices surged at the opening, and U.S. stock market futures significantly declined.

However, after the initial stress reaction, oil prices and stock index futures both recovered part of their volatility and are now hovering near flat, highlighting the deep hesitation and entanglement in the market as it assesses the duration of war and potential economic consequences.

Following the downward trend in U.S. stocks on Friday, Asian stock markets crashed on Monday. The Nikkei 225 index's intraday loss widened to 4%. Korea Exchange triggered the KOSPI index circuit breaker after KOSPI 200 futures fell 5%, suspending program trading for five minutes.

Goldman Sachs trader Shreeti Kapa stated, "The market is already beginning to reflect the inflation risk brought by this brief energy shock, but has not truly priced in the growth downside risk from long-term shocks." This stands in sharp contrast to the energy shock of 2022. Currently, the market still tends to believe that the war and energy disruptions will be relatively short-lived.

Markets stabilizing after Monday’s opening volatility

This weekend, the Middle East conflict saw a dramatic shift from “de-escalation” to rhetoric of “threats” and “complete destruction.”

According to CCTV News, on March 21 local time, U.S. President Trump posted on the social platform "Truth Social" demanding that Iran fully open the Strait of Hormuz within 48 hours, or the U.S. will strike and destroy all types of power plants in Iran, "the largest one first."

Early morning on the 22nd, Iran’s armed forces’ Khatam al-Anbiya Central Command warned that, according to previous warnings, if Iran’s fuel and energy infrastructure is attacked, all energy infrastructure, information technology systems, and desalination facilities of the U.S. and its allies in the region will become strike targets.

Asian markets reacted fiercely at Monday’s opening. WTI crude oil initially soared above $100, but then fell back from the opening high. Brent crude also edged down from Friday's high.

On the equity side, U.S. stock index futures dropped about 1%–1.5% from Friday’s post-market high in early trading, but then trimmed losses and are now mostly flat. U.S. 10-year Treasury futures fell, with implied yields rising about 4–5 basis points. Additionally, gold prices held steady near $4,500 while Bitcoin continued to fall throughout the weekend, now below $68,000.

Goldman Sachs: Everything depends on how long the war lasts

According to Goldman Sachs’ Kapa, the core contradiction in current market pricing is: the market has largely digested the rate shock, but has only limited pricing in for growth risks. This contrasts with the situation during the 2022 energy shock, when real yields soared from negative values, causing a larger scale of rate negative shocks.

Currently, the market’s implicit assumption is that the war and resulting energy supply interruption will be relatively brief. If this assumption is proven wrong and energy price spikes persist longer than expected, the market will have to reprice for a larger downgrade in global growth and corporate earnings, with global equities facing further pullback pressure.

Bloomberg macro strategist Michael Ball previously pointed out that rising energy costs have an inflationary effect, essentially taxing consumers, corporate profit margins, and market confidence simultaneously. This also explains why major central banks have released tougher signals this week—the market rapidly priced in tightening expectations from the European Central Bank and Bank of England, and erased all U.S. Fed rate-cut expectations for the year, with even bets appearing on Fed rate hikes.

Central banks in various countries do not want to repeat the mistakes of 2021 and 2022, when slow response and misjudgment of inflation strength and endurance led to rate hikes. But as economic growth slows and the labor market becomes more flexible, rate hikes become more difficult, especially since financial conditions often tighten before the first actual rate hike takes place.

Kapa pointed out that current rate markets are beginning to show this tension: front-end repricing narratives are outweighing clean duration selloffs, and concerns over policy mistakes are surfacing. Hawkish statements can quickly push up 2-year yields, but convincing the long end to believe the economy can withstand another full tightening cycle on top of persistent energy shocks is much harder.

Strait of Hormuz: The sole variable in market pricing

The current situation boils down to a core question: how long will the Strait of Hormuz be closed.

The answer to this determines whether tankers can transit safely, whether oil flow can return to pre-conflict levels, and the credibility and duration of any ceasefire agreement. Kapa pointed out the core dilemma of binary risk is that traditional diversification is almost powerless—single exogenous events can reprice all assets simultaneously, and diversification cannot hedge this risk.

Against this backdrop, Kapa recommends that investors shift portfolio management from optimization to structurally positioning around result trees: overweight energy, defense, defensive sectors, and high quality assets under “prolonged conflict”; overweight high-beta, cyclical, and rate-sensitive assets under “rapid resolution”; and meanwhile cut total exposure, not just net exposure, because in a binary risk environment, correct directional calls are less important than position management.

Kapa summarizes that binary risk environments reward liquidity and flexibility, not directional judgement. Those who perform well in such situations are often not those who correctly call a bottom, but those holding cash and able to act quickly as uncertainty dissipates. Considering that global equity risk premia are near zero and valuations across regions and sectors are at historic highs, holding cash is actually a reasonable asymmetric position—hardly sacrificing expected return, but gaining significant flexibility.

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