How Geopolitics Affects Inflation and Markets: A Long-Term Perspective

The conflict involving Iran has continued to affect financial markets, with oil prices reacting quickly to each new development. After a two-week ceasefire was announced on April 7, 2026, Brent crude fell sharply and settled at $94.75 per barrel on April 8. More recently, Brent settled at $97.66 per barrel on April 13 as investors weighed the possibility of renewed U.S.-Iran talks against ongoing supply concerns. These moves highlight how quickly geopolitical developments can affect markets, especially through energy prices.

For long-term investors, the more important question is not the headline itself, but how these developments affect the broader economy, businesses, and consumers over time. One of the clearest transmission channels is energy: when oil prices rise, households and businesses often feel it through gasoline, transportation, and input costs.

Rising energy costs have lifted headline inflation

The most immediate economic effect has been higher energy prices. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index rose 3.3% year over year in March 2026, while the energy index increased 12.5% over the same period. Within energy, gasoline rose 18.9% year over year and fuel oil rose 44.2% year over year.

At the same time, inflation outside food and energy remained more contained. The core CPI measure, which excludes food and energy, rose 2.6% year over year in March, up slightly from 2.5% in February. This matters because it suggests that, at least so far, the increase in energy costs has not translated as broadly across the rest of the consumer basket.

Consumers are also seeing these pressures directly at the pump. AAA reported a U.S. national average regular gasoline price of $4.118 per gallon on April 14, 2026.

That distinction is important. Headline inflation can move higher quickly when energy prices spike, but the broader economic impact often depends on whether those higher prices persist long enough to affect transportation, manufacturing, and consumer behavior more broadly. At this stage, the available March inflation data show a sharp energy effect, while core inflation has remained comparatively steadier.

The job market remains mixed

The labor market has also shown signs of unevenness. The March employment report showed that total nonfarm payroll employment increased by 178,000, while the unemployment rate held at 4.3%. February payrolls were revised lower to -133,000, and January payrolls were revised up to 160,000. Over the first three months of 2026, that works out to an average gain of roughly 68,000 jobs per month.

The labor force participation rate was 61.9% in March, down from 62.4% in December 2025 and 62.0% in February 2026, according to BLS/FRED data. A lower participation rate can make the headline unemployment rate harder to interpret on its own, because fewer people actively seeking work can help keep the unemployment rate from rising even when job creation slows.

Job growth in March was concentrated in a few areas. Health care added 76,000 jobs, construction added 26,000, and transportation and warehousing added 21,000. By contrast, BLS said employment showed little change in several other major industries, including information and professional and business services. Average hourly earnings for all private nonfarm employees rose 3.5% year over year in March.

Overall, the labor market does not appear to be collapsing, but it also does not look uniformly strong. Consumers are navigating higher energy costs at the same time that hiring has become more uneven.

Earnings expectations remain an offsetting support

Even with these pressures, corporate earnings expectations have remained relatively strong. According to FactSet’s April 10, 2026 Earnings Insight, analysts expect the S&P 500 to report 12.6% year-over-year earnings growth for Q1 2026 and 17.6% earnings growth for calendar year 2026. FactSet also reported a forward 12-month P/E ratio of 20.4, which was above the 5-year average of 19.9 and above the 10-year average of 18.9, but below the 22.0 level recorded at the end of the fourth quarter of 2025.

Those figures do not eliminate risk. Earnings estimates can change, and elevated energy prices, weaker hiring trends, or slower economic activity could still weigh on profits. But they do suggest that markets continue to balance geopolitical and inflation concerns against still-solid expectations for corporate fundamentals.

Bottom line

Higher energy prices are creating pressure at a time when inflation and labor market data already warrant close attention. At the same time, core inflation has remained more moderate than headline inflation, the unemployment rate is still relatively stable at 4.3%, and earnings expectations for 2026 remain constructive. For long-term investors, this is a reminder that geopolitical events can drive short-term volatility, but a disciplined approach still depends on broader economic data, diversification, and alignment with long-term goals.

Disclosure: This commentary is for informational and educational purposes only and should not be construed as investment, tax, or legal advice, or as a recommendation to buy or sell any security. Market and economic conditions can change rapidly, and views expressed are subject to change without notice. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.

Investors should consult with a qualified financial professional to determine what may be appropriate for their individual circumstances.