Oil prices leap and stocks fall amid US-Iran strikes over Hormuz

Oil prices leap and stocks fall amid US-Iran strikes over Hormuz

Global financial markets are experiencing extreme volatility as the United States and Iran engage in a cycle of airstrikes centered on the Strait of Hormuz. The conflict has triggered sharp swings in crude oil prices and equity markets, oscillating between deep losses during active hostilities and sudden rallies following temporary diplomatic breakthroughs.

Market Shock and Escalation

The volatility intensified after the US launched a wave of attacks against Iran on a Sunday evening. US Central Command stated on X that these strikes were intended to continue degrading their ability to attack civilian mariners and commercial ships freely transiting the strait of Hormuz, adding that Donald Trump has directed the strikes to hold Iranian forces accountable.

The immediate economic reaction was stark. Brent crude rose 4.7% to $79.59 a barrel. In Asia, stock markets plummeted, with South Korea’s Kospi falling 8%. Technology and chip companies were particularly vulnerable; shares in South Korea’s SK Hynix slumped 15% and Samsung Electronics sank 10%. European markets also slipped, with the Stoxx Europe 600 index down 0.2%. Airline stocks were among the hardest hit, with Ryanair, Air France, and International Consolidated Airlines falling between 1.6% and 1.9%, while Wizz Air, Finnair, and Lufthansa dropped between 2% and 3%.

In the UK, the FTSE 100 remained broadly flat as gains in oil companies BP and Shell, up 2.5% and 1.5% respectively, offset other losses. However, gold prices fell 1.5% to $4,060.36 an ounce, as investors feared higher oil costs would force central banks to raise interest rates to fight inflation.

The Hormuz Chokepoint

The conflict centers on the Strait of Hormuz, a critical shipping channel through which a fifth of the world’s oil supply normally passes. Data from Kpler revealed that transit plummeted to just six vessels on a Sunday, the lowest volume in five weeks. These included the 2m barrel Iranian oil carrier Humanity and the Capetan Andreas, carrying approximately 500,000 barrels of Kuwaiti oil products.

While Donald Trump asserted the route remained open, Iran’s Islamic Revolutionary Guard Corps claimed its navy stopped two ships on Sunday by shutting down their systems. Analysts at Goldman Sachs noted that these attacks highlight the uncertainty of Gulf exports and that re-escalation could re-intensify the short-run upside risk to oil prices.

Ceasefire and "Risk-On" Recovery

A sudden shift occurred when the US and Iran agreed to a two-week ceasefire and the temporary reopening of the Strait. This triggered a risk-on move in equities. In London, the FTSE 100 soared 2.5% to close at 10,608.88, and the FTSE 250 jumped 4.1% to 22,434.83. New York markets also climbed, with the Dow Jones Industrial Average up 2.3% and the S&P 500 rising 2.1%.

Oil prices tumbled on Wednesday, with Brent trading lower at 95.20 dollars a barrel, down from 110.24 the previous Tuesday. This price drop hit oil stocks; BP and Shell fell 5.8% and 4.7% respectively. Conversely, aerospace and travel stocks rallied, with easyJet soaring 10% and International Consolidated Airlines Group jumping 8.1%.

Donald Trump described the ceasefire as a total and complete victory. However, the agreement remains fragile. Iran warned it would enter talks in Pakistan on Friday with complete distrust. Iranian foreign minister Abbas Araghchi further cautioned that Tehran could pull out of the deal due to ceasefire violations by Israel.

Long-term Economic Implications

The instability has already bled into the broader economy. S&P Global reported that the UK construction sector remained in negative territory last month, with a purchasing managers' index of 45.6 in March. The report noted that the Middle East war pushed up raw material, transportation, and fuel prices.

The conflict also impacted the AI sector and corporate valuations. SpaceX saw a surge of 19.6% in its second day of Wall Street trading, reaching a market value of more than $2.1 trillion. Meanwhile, Fox Corp. Announced a cash-and-stock deal to buy Roku for approximately $22 billion.

Looking ahead, markets remain cautious. David Morrison of Trade Nation described the current ceasefire as a test phase rather than a resolution. On Thursday, investors await US GDP and personal consumption expenditures data, alongside German trade and industrial production figures, to gauge the global economic impact of the crisis.