Oil prices jumped sharply on Monday, and equities fell across major markets as the military conflict between the United States, Israel, and Iran showed no sign of abating, raising the prospect of a prolonged supply shock that could reignite inflation and weigh on a fragile global economic recovery.
Brent crude climbed 6.4 per cent to $77.57 a barrel, briefly breaching $82.00, whilst US crude rose 6.2 per cent to $71.17. Gold, the traditional refuge in times of geopolitical stress, gained 1.6 per cent to $5,360 an ounce.
The immediate focus of market anxiety is the Strait of Hormuz, through which roughly a fifth of the world’s seaborne oil trade and a fifth of its liquefied natural gas passes. The waterway has not yet been formally blocked. Still, marine tracking data showed tankers accumulating on either side of the strait, with operators reluctant to risk attack or unable to secure insurance for the voyage.
Donald Trump told the Daily Mail the conflict could last a further four weeks, and posted separately that strikes would continue until US objectives were met — a signal that markets interpreted as ruling out any swift de-escalation.
OPEC+ agreed a modest output increase of 206,000 barrels per day for April on Sunday, but analysts noted that much of that additional supply still had to transit the Middle East by tanker before it could reach consuming nations.
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The ripple effects spread quickly across asset classes. In Asia, Japan’s Nikkei fell 1.3 per cent — airlines were among the hardest hit in a country that imports all of its oil — whilst MSCI’s broadest Asia-Pacific index outside Japan lost 1.2 per cent. Chinese blue-chips slipped just 0.1 per cent. In the Gulf, the UAE and Kuwait temporarily suspended stock market trading, citing exceptional circumstances. European futures pointed lower, with DAX futures off 1.4 per cent, Eurostoxx 50 futures down 1.3 per cent, and FTSE futures shedding 0.6 per cent. On Wall Street, S&P 500 and Nasdaq futures each lost 0.8 per cent.
Currency markets reflected the familiar pattern of an oil shock. The dollar strengthened, buoyed by the United States’ status as a net energy exporter and the continued appeal of Treasuries as a liquid haven, pushing the euro down 0.2 per cent to $1.1787. The yen, typically a beneficiary in risk-off episodes, saw more mixed flows given Japan’s near-total dependence on imported energy.
Bonds had already been under pressure before the weekend’s escalation. UK mortgage lender MFS was placed into administration on Friday following allegations of financial irregularities, after borrowing £2 billion from several large banks. Its collapse stoked broader credit concerns and contributed to a sell-off in banking stocks that compounded the geopolitical jitters.
Investors must also contend with a heavy week of US economic data, including the ISM manufacturing survey, retail sales figures, and the monthly payrolls report. Weakness in any of these could deepen unease about the health of the American economy following a disappointing fourth quarter, though it would also likely increase pressure on the Federal Reserve to cut rates. Markets are currently pricing in roughly a 50 per cent chance of an easing in June and around 58 basis points of cuts across the full year.
