The market muddles through the fog of a widening war in the Middle East

The “fog of war” once described the confusion between combatants: the tangle of bad intelligence, miscommunication, and misread intentions that makes conflict so complex to navigate from the inside. In 2026, the fog has spread. It now encompasses the news media covering the war, the governments pronouncing on it, the strategic leaks designed to move markets, the breaking news from X $TWTR 0.00% accounts of uncertain provenance, and the nearly impossible task of separating signal from noise when information warfare runs on a parallel track to the shooting kind.

Perhaps this is why, just five days into the U.S.-Israeli war against Iran, and three days into open trading, markets are shifting uneasily into positive territory.

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The S&P 500 gave back all of its 2026 gains as war rages in the Middle East

The S&P 500 and other major indexes were set to open in the green on Wednesday, while the VIX was falling. The seeming cause? A New York Times report that some Iranian intelligence operatives made indirect contact — through a third country’s spy agency — with the CIA, floating terms for ending the conflict. It’s not clear to what degree the report, with its strong market-calming effects, should be taken at face value. Israel has reportedly urged the U.S. to ignore the approach. Washington is reportedly not treating it as serious.

Indeed, oil was still climbing Wednesday — now above $82 a barrel, even as Trump has floated the idea of U.S. Navy escorts through the Strait of Hormuz. According to Goldman Sachs $GS -3.47% estimates, oil traffic through the strait is running at about 15% of normal flows. A Maltese container ship was struck by an unknown projectile in the strait on Wednesday morning.

U.S. gas prices jumped overnight and were averaging $3.20 a gallon on Wednesday, up from less than $3 at the start of the week.

Meanwhile, the war appears to be widening. Early Wednesday, Iran fired a ballistic missile that NATO intercepted over Turkey. Saudi Arabia’s Ras Tanura refinery — already closed after drone attacks on Monday — faced a second attempted strike. Iran’s death toll now tops 1,000, including children. Ayatollah Ali Khamenei’s funeral has been postponed amid Israeli threats.

“Most of the people we had in mind are dead,” Trump told reporters Tuesday in discussing possible future leaders for the country of 93 million. “Pretty soon we are not going to know anybody.”

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