The Iran war’s energy shock is historic. The real economy has taken it on the chin so far.
One of the difficulties in investing around any sudden crisis like the Middle East conflict is that there’s very little immediate economic information beyond market sentiment, pricing or anecdotes. By the time reliable data on the economic impact eventually shows up, the crisis is often on the wane.
In this case, the most instant jolt was clearly in energy markets and pricing.
Global benchmark Brent crude futures have soared above $100 per barrel, rising 64% in the first month of the war, a record monthly gain. U.S. crude jumped around 52% in March, its biggest gain since the COVID-19 pandemic. U.S. pump prices soared above $4 per gallon for the first time in nearly four years.
International Energy Agency head Fatih Birol described the hiatus in Gulf energy supplies as a crisis worse than the two oil crises in 1973 and 1979 and the Russian gas outage after the Ukraine invasion – combined. Birol went further on Wednesday, warning that oil supply losses in April will be double those of March – and will begin to cut economic growth in Europe.
Five weeks into a conflict that Washington now indicates may be winding down, we are getting the first real readout on how households and businesses dealt with the initial crunch.
So far, it’s not the body blow many assumed.
REAL OR IMAGINED?
Business surveys around the world showed some hit to service-sector sentiment but the manufacturers, arguably the most exposed to an energy squeeze, actually picked up steam.
Both U.S. and European factories registered their fastest growth in activity last month in almost four years, according to purchasing managers’ surveys. Germany and Italy recorded their strongest readings in 46 and 37 months, respectively.
Even Chinese manufacturers, who had been in contraction for most of last year and the first two months of 2026, were back in growth in March, according to official surveys.
One caveat flagged by analysts: the headline Purchasing Managers’ Index – the catch-all of the surveys – can treat lengthening delivery times as a positive sign of economic heat rather than – likely in this case – supply disruption.
That may well have flattered the readings.
But even so, there was little sign of major shock and most countries reporting showed their business sectors continuing to expand on aggregate.
The Institute for Supply Management manufacturing survey showed actual U.S. factory production rising in March. New orders dipped, but both components were still growing briskly.
What was crystal clear was that prices paid by firms worldwide shot up instantly to reflect the oil spike – but without stalling overall growth, leaving economists wary of rushing to recession calls.
JPMorgan’s global manufacturing PMI did fall in March, but it continued to show expansion consistent with a modest 1.5% annualized pace of growth in world factory output.
What about households?
The first full-month reading on U.S. consumer confidence also surprised to the upside.
The Conference Board said on Wednesday the Consumer Confidence Index rose almost a point in March to 91.8, driven by a jump in the “present situation” reading – even as the expectations component fell and inflation concerns picked up.
The so-called labor-market differential, which gauges views on whether jobs are plentiful or hard to get, ticked higher to show some stability.
That suggestion of a firmer labor market was reinforced by the ADP’s report showing private-sector payrolls rose 62,000 during the month – more than 20,000 above consensus forecasts and just shy of the three-year average. The wider national employment report now takes center stage on Good Friday.
FULL YEAR UP A GEAR?
Investors also point to another peculiar uptick during the turbulent month.
Even as the month-long conflict has left the S&P 500 and the Dow with their deepest quarterly declines since 2022, full-year earnings growth estimates for S&P 500 companies have surged to around 18% – up from about 15% before the war.
The selloff has also cut 12-month forward earnings valuations by more than 10%, to their cheapest in over a year.
This is contested. Many analysts reckon the earnings boost is mostly a knee-jerk upgrade to energy and defense, combined with inertia among analysts in other sectors awaiting this month’s updates.
That’s a plausible reason for caution but the biggest forecast upgrades in March actually came in tech, where the artificial intelligence buildout continues to drown out almost all other disruptions.
One upshot is that the real economic hit may be slow to register, seeping into business costs and workers’ wallets with a lag.
But there’s also a chance that by the time official data arrives, the conflict may have de-escalated to the point of healing the energy wound and allowing markets to refocus on a relatively hot economy and themes like AI.
That’s still all in the realms of guesswork, but not inconceivable given the week’s events.
What’s for sure is the equivocal picture should urge central banks not to jump the gun with policy changes just yet – suggesting the best course of action may be to do nothing for now.
(The opinions expressed here are those of Mike Dolan, a columnist for Reuters.)
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(by Mike Dolan; Editing by Marguerita Choy)