Operation Epic Fury Adds New Risk to Outlook
March 04, 2026
Peter R. Phillips, CFA®, CAIA®
Senior Vice President and Chief Investment Officer
Washington Trust Wealth Management
On February 28th, the U.S., in coordination with Israel, launched Operation Epic Fury, a military campaign aimed at eliminating Iran’s nuclear threat and degrading its broader military capability. The Trump Administration appears intent on achieving its objectives and has suggested that the campaign could last four or five weeks.
So far, equity markets have absorbed the news relatively well, experiencing only a modest drawdown in stock prices. Oil prices, on the other hand, have surged approximately $24 per barreli, or 38%, since the beginning of the year, reflecting the nature of the conflict and its proximity to major world oil production centers and shipping lanes.
As the situation evolves – and particularly if it escalates – market volatility is likely to stay elevated. We should not be surprised to see a more significant decline in stock values, a further increase in oil prices, and a flight to safe-haven assets such gold, U.S. Treasuries, cash, and possibly even the U.S. dollar. However, it is worth noting that similar geopolitical events in the past have typically not had a significant long-term impact on the economy and financial markets. In fact, equity markets were higher twelve months after the starts of U.S. military actions in Libya (1986), the Gulf War (1990), and Iraq War (2003).ii
Notwithstanding the recent geopolitical developments, the U.S. economy began the year with solid momentum, adding 130,000 jobs in January and recording the fastest year-over-year increase in industrial production since 2022. Sustained elevated oil prices, however, could drive higher inflation, push interest rates upward, reduce discretionary consumer spending, and slow overall economic activity. We will provide more detailed analysis of the U.S. economy and financial markets in our upcoming 2Q:2026 Economic and Financial Market Outlook, to be published in April.
In the meantime, we advise clients to assess and plan for near-term liquidity needs, while remaining focused on their long-term investment goals and avoiding the temptation to make major asset allocation changes in response to near-term events.
Please reach out to your investment team if you should have any questions or concerns.
i All statistics from FactSet unless otherwise noted.
ii Morgan Stanley, US Equity Strategy, Weekly Warm-Up: Cutting Through Narratives, March 2, 2026
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