Heightened geopolitical tensions in the Middle East, particularly involving Iran, have created significant uncertainty in global markets. James Knightley, chief international economist at ING, emphasized that the situation is difficult to predict, with investors remaining on edge as key deadlines approach. The conflict has led to rising oil prices, which in turn raises inflation concerns, especially as central banks prioritize price stability amidst rising energy costs. Knightley pointed out that the Federal Reserve lacks the tools to manage supply shocks effectively, stating, 'They cannot print oil.' He noted that while the current supply shock could be demand-destructive, it may prevent broad and persistent inflation. The volatility in crude oil prices is a key focus, with potential price corrections depending on the extent of damage to supply infrastructure. Investors are adopting a defensive approach, favoring safer assets as they navigate this uncertain landscape, reflecting a cautious market sentiment until greater clarity emerges on geopolitical and economic fronts.