Oil prices have surged to their highest levels since 2022 as the U.S.-Iran war drags into its fifth week, triggering a wave of volatility across global equity, bond, currency, and commodity markets. For investors trying to make sense of the turbulence, understanding which sectors bear the brunt of an energy shock — and which ones benefit — is more important than ever.
The Macro Backdrop: Stagflation Fears Return
The clearest signal of market stress came from Goldman Sachs, whose strategists warned in a note on March 31 that the “balance of risks has worsened” for equity markets and that the probability of a stagflationary outcome has increased materially. “Stagflation has historically been a poor environment for equities, characterised by low real performance and elevated volatility,” the note read. “We do not think the market is fully pricing stagflation.”
Stagflation — the toxic mix of stagnant economic growth and rising inflation — is the scenario investors fear most, because it ties the hands of central banks. The Federal Reserve, which would normally cut rates to stimulate a slowing economy, cannot do so easily when oil prices are driving inflation higher. Fed Chair Jerome Powell acknowledged the dilemma in late March, noting that short-term energy shocks are typically looked through, but that sustained high oil prices could force a reassessment.
The practical result: all three major U.S. indexes — the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average — were on course to end March in negative territory, capping one of the most bruising months for equities in years.
Sectors Taking the Hardest Hit
Consumer Discretionary and Retail
Higher energy prices function as a tax on consumer spending, and consumer discretionary is typically first in line to feel the squeeze. MassMutual Wealth chief investment officer Daken Vanderburg explained the mechanism clearly: as fuel costs ripple across goods and services, consumers pull back from non-essential purchases first. “That slows growth and hits spending, and does it quite quickly,” Vanderburg told CNBC.
With roughly two-thirds of the U.S. economy driven by consumer spending, any sustained pullback in discretionary categories — restaurants, entertainment, apparel, travel — translates directly into slower revenue growth for the companies that serve those markets. Retailers with thin margins and heavy logistics exposure are particularly vulnerable.
Airlines and Transportation
Jet fuel costs have spiked sharply since the war began, and carriers are already passing the pain to passengers. United Airlines and JetBlue both raised checked baggage fees during the first week of April. Meanwhile, Amazon announced a 3.5% “fuel and logistics surcharge” on marketplace sellers — a move that signals cost pressure throughout the entire e-commerce supply chain.
For smaller logistics operators and trucking-dependent businesses, the squeeze is even more acute. Nick Friedman, co-founder of moving company College Hunks Hauling Junk, noted that fuel costs have effectively doubled as a percentage of revenue since the conflict began — rising from a historical 3–5% of revenue to 6–10%. “We are in a bit of a Catch-22,” he told CNBC. “Our fear would be if we start raising prices it will hurt our customers.”
Tech and High-Growth Stocks
The Nasdaq Composite, heavily weighted toward high-growth technology companies, has faced twin headwinds: rising bond yields (which compress the present value of future earnings) and a risk-off sentiment that tends to punish high-multiple stocks. The combination has kept growth-oriented portfolios under pressure throughout March and into April.
Sectors Holding Up — or Benefiting
Energy Producers
The most direct beneficiary of surging oil prices is the energy sector itself. U.S. oil and gas producers, refiners, and pipeline operators have seen revenue and earnings estimates revised sharply upward. The International Energy Agency (IEA) warned on April 1 that the oil supply crunch would worsen through April, even as it weighed releasing additional strategic reserves — a backdrop that has provided support to energy equity valuations.
Importantly, the U.S. is far less dependent on imported oil than it was during the energy crises of the 1970s, which means domestic producers capture more of the upside when prices rise. That structural difference is one reason U.S. equity markets have outperformed European and Asian peers during this sell-off.
Defense Contractors
Geopolitical conflict historically boosts defense spending expectations, and defense contractors have outperformed the broader market since the war began. With active military engagement in the Middle East, government procurement timelines tend to accelerate, supporting near-term revenue visibility for major defense primes.
The U.S. Dollar
The dollar has reasserted its safe-haven status. The dollar index — which measures the greenback against a basket of major currencies — was on track for roughly a 3% gain in March, reversing losses accumulated in the aftermath of last year’s tariff volatility. OCBC strategists noted that “energy-driven stagflation risks are supporting the USD in the near term,” though they flagged that a softer dollar could re-emerge if oil prices ease in the second half of 2026.
Asian and European currencies have struggled, given those regions’ heavier dependence on imported energy. South Korea’s Kospi — the top-performing global equity index in 2025 — fell nearly 20% in March alone, a stark illustration of how energy-import exposure amplifies market sensitivity to oil shocks.
Gold’s Unusual Behavior
One of the more surprising market dynamics has been gold’s underperformance. Traditionally viewed as a safe-haven asset that benefits from uncertainty, gold was on course for its worst monthly performance in recent history as of late March. The most likely explanation: a strengthening dollar (which moves inversely to gold prices denominated in USD) and rising real interest rates are creating headwinds that are offsetting the typical geopolitical premium.
What History Suggests About Oil Shock Investing
History offers a mixed read on oil shock investing. The 1973 OPEC embargo and the 1979 Iranian Revolution both triggered sharp equity drawdowns followed by multi-year recoveries. The 1990 Gulf War caused a brief but significant sell-off that reversed quickly once hostilities ended. In each case, duration was the critical variable: short shocks tended to be absorbed; prolonged energy disruption drove stagflation and sustained underperformance.
Dan Coatsworth, head of markets at AJ Bell, offered a grounding perspective: “Markets have seen wild swings, and this volatility might have encouraged investors to bet that certain stocks or funds will move one way or another. The market has quickly changed direction repeatedly, leaving some people sorely disappointed. Sometimes less is more when it comes to investing.”
Key Variables to Watch
Several data points will shape how this plays out over coming weeks:
- Strait of Hormuz status: Approximately 20% of globally traded oil passes through the strait. Any disruption — or resolution — will move markets immediately.
- Federal Reserve communications: Powell has so far resisted calls to raise rates, viewing oil shocks as transitory. A shift in language would reprice fixed income markets rapidly.
- IEA strategic reserve releases: Coordinated reserve releases could cap oil prices and reduce inflationary pressure on consumer budgets.
- U.S. consumer spending data: March retail sales figures, due in mid-April, will offer the first hard evidence of whether spending is cracking under fuel-price pressure.
- Diplomatic developments: Any credible ceasefire signal would likely trigger a sharp relief rally across risk assets.
The current environment demands careful attention to sector positioning and a clear-eyed view of how long the energy disruption is likely to persist. Volatility, as history suggests, creates both dislocations and opportunities — but navigating them requires understanding the underlying drivers, not just the headline moves.
Disclosure: This article was produced with AI assistance and reviewed before publication. It is for informational purposes only and is not investment advice.