Global markets plunge as Iran's Khamenei killed in US-Israeli strikes
Oil prices surge past $67 as Tehran blocks Strait of Hormuz, threatening 20% of global supply
Global financial markets spiraled into risk-off mode Monday as confirmed reports of Iran's Supreme Leader Ayatollah Ali Khamenei's death in a joint US-Israeli military operation triggered the most severe Middle East escalation in decades. The VIX volatility index surged 6.6% to 19.86, marking its third increase this year, while S&P 500 futures fell 0.47% as investors fled to traditional safe-haven assets including US Treasuries and gold.
The coordinated airstrikes, codenamed "Roaring Lion" by Israel and "Operation Epic Fury" by the United States, began February 28 at approximately 9:45 a.m. local time, targeting multiple Iranian cities including Tehran, Isfahan, Qom, Karaj, and Kermanshah. Iranian state media confirmed Khamenei's death on March 1, with Tehran declaring a 40-day mourning period. The attack also killed several senior Iranian officials, including Supreme National Security Council secretary Ali Shamkhani, army chief Gen. Abdol Rahim Mousavi, and Defense Minister Gen. Aziz Nasirzadeh.
Iran responded swiftly, launching missile and drone attacks against Israel and US military bases across Bahrain, Kuwait, Qatar, the United Arab Emirates, Jordan, and Saudi Arabia. President Masoud Pezeshkian condemned the killing as a "declaration of war against Muslims" and vowed retribution. Most critically, the Iranian Revolutionary Guard Corps issued radio warnings declaring that "no ship is allowed to pass the Strait of Hormuz," the strategic waterway through which approximately 20% of the world's oil supply and a quarter of global liquefied natural gas trade flows.
Oil prices reacted immediately to the unfolding crisis. West Texas Intermediate crude jumped to $67.78 per barrel, reaching its highest level since August and marking a 23% increase from December lows. Brent crude, which had already closed at $72.87 on February 27, is "poised to surge" as trading resumes, with analysts projecting prices could exceed $100 per barrel if the conflict escalates further. Some market participants warned that a sustained blockade of the Strait could push prices to $120-$150.
The shipping disruption is already materializing. Major container carriers including Hapag-Lloyd, CMA CGM, and Maersk have halted transits through the Strait, while leading oil companies and trading houses have suspended crude oil, fuel, and LNG shipments. The US Navy has advised commercial vessels that it cannot guarantee safety in the Persian Gulf, and insurance rates for ships transiting the region are expected to increase by up to 50%. Financial analysts estimate that even a one-day blockade could double global oil prices.
The broader equity market response reflected deep uncertainty. Beyond the S&P 500 futures decline, global indices across Asia and Europe pointed to lower openings as investors assessed the potential economic fallout. Safe-haven flows accelerated, with the Swiss franc and gold attracting significant capital. Economists warned that the elevated geopolitical risks would likely intensify the risk-off bias in coming weeks, particularly given Iran's threats to target nuclear negotiations mediator Oman and other regional actors.
Market participants are now focused on several critical developments in the days ahead: the formation of Iran's interim leadership council, which the country's security officials indicated would commence March 1; potential further Iranian military retaliation; and the response of other regional powers. Alternative pipelines in Saudi Arabia and the UAE exist but cannot fully compensate for a sustained closure of the Strait of Hormuz, leaving global energy markets vulnerable to prolonged disruption.