When the United States and Israel struck Iran on February 28th, 2026, many believed the conflict would be swift. In the weeks since, it's now become apparent that the Iran war will last much longer than initial claims by the Trump administration.
You can see the sentiment change in almost real time if you follow oil prices. In the first few days of March, it shot up to nearly $100, with intraday prices close to $120, before settling down into $80s. Then, as the war seemed to linger, it was crept back up to close to $100 a barrel.
The stock market behaved similarly. This reflect the consensus that this war was going to take many weeks, if not months, to conclude and its impacts would mirror that.
With that in mind, how will this affect your money?
Read more
- Are you overpaying on car insurance?
- Find the highest CD rates from 30,000+ rates.
- Are You Saving Enough? Here’s How Your Retirement Stacks Up by Age
Oil Prices
Oil prices are the obvious first order effect. Iran controls the Strait of Hormuz, a narrow shipping lane that you probably heard of but didn't know accounted for 20% of the world's oil each day. While the United States no longer relies on oil from the region, as it did in decades past, many other nations do and that has increased oil prices. We see the effects of that at the pump, where prices have increased significantly in the recent weeks.
With higher prices for oil, we will have higher prices for all its products such as gasoline, diesel, and heating oil. Diesel remains the life blood of shipping in America and so higher diesel means everything we buy will increase in price. Energy is a significant portion of our inflation calculation too, so expect inflation to once again rear its ugly head at a time we can least afford it because economic activity is down.
Inflation
Speaking of inflation, energy costs trickle through the entire economy. Everything we buy has to be moved across the country and much of it is moved by trucks burning diesel.
If you have any future travel plans that require flights, those are likely to increase in price as well because of jet fuel. Some airlines are better than others at hedging fuel prices and the ones that are worse will pass along price increases to their customers.
Some measure of inflation is expected but when oil prices spike, the associated price increases tend to be sudden. Those on fixed income won't see immediate cost of living adjustments and will feel the pinch immediately. If you are on fixed income, look to move more savings into inflation protected assets such as Treasury Inflation-Protected Securities (TIPS) or Series I bonds, which have an inflation component that can offer modest protection while remaining “safe” investments.
Stock Market
The stock market can absorb inflation but hates uncertainty, especially in the short term. What is more uncertain than an unexpected war?
Fortunately, the stock market has shown great resilience and if you can personally absorb the short term volatility, you are typically rewarded with favorable returns. According to Kelly Bogdanova of RBC Wealth Management, in the 20 major post-World War 2 military conflicts, the S&P 500 fell 6% from initial market impact to trough level. In 19 of the 20 events, it took an average of only 28 days to return to where it had been prior to those events.
While past performance is not indicative of future performance, it's heartening to know that the market recovers. If you have the time to wait, the best thing to do is wait. If you are closer to retirement, you have to manage sequence of returns risk. Review your asset allocation and your financial needs to ensure you aren't withdrawing funds before the market has an opportunity to recover.
Interest Rates
The Federal Reserve has a dual mandate to maximize employment and maintain stable prices. With inflation likely to rise due to higher energy prices, the Fed will be hard pressed to lower interest rates. The greater challenge is how unemployment continues to creep up, which indicates a weakening economy and a greater risk of stagflation.
Higher energy prices will likely push the Fed to delay any rate cuts which means borrowing will remain expensive. Personal loan and mortgage loan rates will remain roughly where they are, impacted more by demand than Fed policy. But interest rates on certificates of deposit, Treasury bills, and similar assets will also remain elevated as well. One useful tool to watch interest rates is the CME Group's FedWatch tool, which calculates market expectations based on where interest rates traders put their money.
Psychological & Emotional Risk
Money and emotions are intertwined, it's difficult to maintain a level head when you have scary headlines and a volatile stock market. Be careful about the media you consume and don't let it dominate your emotions. Wars are visual and it's easy to fall into the rabbit hole of its imagery because of its brutality.
Financial news will always use language to make the market seems more exciting too. You'll hear of market crashes when it falls 1% or how the VIX is at all time highs. Manage your consumption and it's impact on your emotions or it'll manage you. Remember that markets recover, on average, in 28 days.
Bottom Line
No one knows when this Iran war will end but we all know wars create uncertainty and your finances hate it. The stock market especially.
While it's difficult to plan for the future with so much volatility, we must do our best and forge ahead. Make decisions according to your financial plan, make contingencies for when events change, and be sure to account for your own mental health.
The longer this drags on, the higher prices will go. That, despite all the volatility, is one thing we can be certain of.
Please Like, Follow and Comment
Did you enjoy this article? If so, we'd love to hear what you think! Please leave a comment with the box on the let side of the screen and let us know what you think.
Do you want to keep up to date on our latest content?
1. Follow us by clicking the [+ Follow} button at the top,
2. You can subscribe to Best Wallet Hacks and get a free weekly email to help you build wealth and live a richer life, and,
3. Please give this article a Thumbs Up 👍 at the top left of the screen,
4. Finally, please send this to a friend you think really needs to know this!
