The ongoing conflict between the United States and Iran continues to shift, and financial markets have been responding to each new development. When a ceasefire was announced, it helped calm tensions and pushed oil prices lower — Brent crude (a widely used benchmark for oil prices) dropped into the $90 range. But when peace talks fell apart, prices climbed back above $100 per barrel. This reminds us that geopolitical situations — meaning tensions or conflicts between countries — can change very quickly. For investors focused on the long term, the key question is how these events affect the broader economy, businesses, and everyday consumers.

In general, geopolitical conflicts tend to influence financial markets mainly through energy prices. Higher energy costs affect how much people pay for fuel, and those costs can ripple through the rest of the economy over time. Knowing how this process works can help investors stay grounded. Specifically, keeping an eye on inflation (the rate at which prices rise), the job market, and company profits can offer useful guidance in today’s environment.

Energy costs are pushing overall inflation higher

The most direct impact of the Iran conflict on consumers is through higher energy prices. The latest Consumer Price Index (CPI) report — a common measure of how much prices have changed — for March showed that energy costs rose 12.5% compared to a year ago. Gasoline prices surged 18.9%, and fuel oil rose 44.2%. These increases pushed the overall CPI reading to 3.3%, a notable jump that has raised concerns about a return to the high-inflation environment seen in 2022. Much of this increase was expected, since the conflict in Iran began at the end of February.

However, the CPI report also shows that rising energy costs have not yet spread to other major spending categories. Core CPI — which excludes food and energy to give a clearer picture of underlying price trends — rose just 2.6% year-over-year. That came in below what analysts had expected and was only slightly above the prior month’s 2.5%. An even narrower measure that also removes housing costs, sometimes called “supercore” inflation, rose only 2.3%.

These numbers suggest that while energy prices are hitting consumers’ wallets — with the average price of gasoline reaching $4.12 per gallon, and even higher in many areas — those pressures have not yet broadly spread across the economy. This distinction is important because the bigger concern is whether sustained high oil prices could eventually push up the cost of goods and services more widely, through higher transportation, energy, and manufacturing costs.

While higher gasoline prices are clearly a burden for many households, economists often view these kinds of supply-side shocks — meaning price increases caused by disruptions in supply rather than increased demand — as temporary. The fact that core inflation has stayed relatively steady gives hope that once conditions in the Middle East stabilize, inflation could return to pre-conflict levels. The drop in oil prices that followed the initial ceasefire announcement supports that view. Of course, how quickly this happens depends on how the conflict itself unfolds, which remains hard to predict.

The job market has softened, but demographics make the picture more complex

Beyond inflation, the health of the job market is another important indicator for investors to watch. The latest employment report showed that 178,000 new jobs were added in March — a positive surprise that beat expectations of just 65,000. However, the previous month was revised sharply lower to a loss of 133,000 jobs, a reminder that these monthly figures can be volatile and subject to significant changes.

Stepping back, the broader trend points to slowing job creation. Since the start of 2025, the economy has averaged only about 21,000 new jobs per month — a big slowdown from the 122,000 monthly average seen in 2024. Interestingly, the unemployment rate has not risen much. It edged down slightly to 4.3% in March, but this is partly because fewer people are actively looking for work, not because hiring has been especially strong.

A helpful way to understand this is through the labor force participation rate, which measures the share of working-age Americans who are either employed or actively seeking work. As the chart below shows, this rate has fallen to just 61.9% — its lowest level since the pandemic. This isn’t entirely a new trend; participation has been declining since the early 2000s, largely because the population is aging. For example, more than 11,000 baby boomers reach retirement age every single day.

These demographic shifts, along with reduced immigration, mean that fewer working-age people are in the labor force. As a result, the economy needs fewer new jobs each month to keep unemployment low, which can make the headline job numbers harder to interpret on their own.

Looking inside the monthly jobs report, the picture is also uneven. Most recent job growth has been concentrated in the “Education and Health Services” sector, while the “Information” sector has seen job losses, as reflected in layoff announcements from large technology companies. Wage growth has slowed to 3.4% year-over-year, but this is still faster than the overall inflation rate for many workers, which helps support consumer spending.

What does this mean for investors? Consumers are facing higher costs at a time when job market conditions are softening. That said, the unemployment rate remains relatively stable, suggesting that people who want to work are generally finding jobs. The main change is that a smaller share of the population is actively participating in the workforce compared to the past.

Corporate earnings growth remains strong

One bright spot for investors amid uncertainty around geopolitics, inflation, and employment has been the strength of corporate earnings — meaning the profits that companies report. Despite the challenges described above, consumers have continued to spend and profit margins have stayed high for many businesses. Current Wall Street estimates suggest that earnings per share for companies in the S&P 500 — a broad index of large U.S. companies — have grown approximately 16% over the past twelve months, with expectations for an additional 18% growth over the next year. These are historically strong numbers, well above the long-term average growth rate of 7.7%.

Of course, earnings estimates should always be viewed with some caution, as they are based on analyst projections that can shift as conditions change. Tariff policies, higher energy costs, and a slowing job market could all weigh on company profits in the months ahead. Still, the current pace of earnings growth is one reason stock market valuations — essentially how expensive or inexpensive stocks appear relative to earnings — have improved recently, alongside the market pullback.

This is a good reminder that periods of uncertainty, while uncomfortable, can also be when investment opportunities become more attractive for long-term investors. When markets become volatile due to geopolitical events, stock prices often fall more sharply than earnings expectations do. While this doesn’t guarantee a quick rebound, it does suggest that investors who keep a long-term perspective and hold well-diversified portfolios — meaning portfolios spread across different types of investments — are often rewarded for their patience.

The bottom line? Higher energy prices are affecting the economy at a time when consumers are already facing other pressures. However, strong earnings growth and more attractive valuations have also created opportunities for investors. Maintaining a balanced, diversified portfolio and staying focused on long-term financial goals remains the best approach for navigating this environment.