Fears of sky-high oil prices pushed U.S. markets into a sea of red Monday, following the moves of Asian and European stock markets earlier, as the U.S.-Israeli war with Iran entered its 10th day.
The Dow Jones Industrial Index, Nasdaq and S&P 500 each were down about 1 percent to start the day. Earlier, Japan’s Nikkei index plunged about 5 percent. European stock markets shed 1 to 2 percent.
Oil prices shot overnight to heights not seen since the aftermath of Russia’s invasion of Ukraine, before settling early Monday morning at just above $100 per barrel. That’s about 50 percent higher than the prewar price.
A price of $100 per barrel often translates into an average of $4 a gallon at U.S. gas pumps, according to analysts, an important psychological barrier that, unlike most economic numbers, is broadcast from nearly every street corner.
World leaders are scrambling to confront the surging cost of oil, as its fallout also threatens to revive inflation in an array of other products.
An emergency meeting of Group of 7 leaders Monday morning is expected to result in an agreement to release a vast amount of oil from reserves, including the U.S. Strategic Petroleum Reserve, which could ease the crisis at least temporarily.
Oil traders reacted favorably to the news Monday. The price for a barrel of Brent crude, the global oil benchmark, spiked to just shy of $120 before settling down to about $105. Markets have not seen a $100 per barrel price level since 2022.
The current cost is a remarkable escalation from where it was before the United States attacked Iran less than two weeks ago.
Prices at the pump in the U.S. are now 47 cents higher than a week ago, according to AAA, averaging $3.48 for a gallon of regular.
Tapping the reserves is just a Band-Aid.
The Strait of Hormuz on the southern tip of Iran, a choke point for roughly one-fifth of the world’s oil supply, is not safe for tankers to sail through, leaving the Persian Gulf states with no place to send their oil.
President Donald Trump’s suggestions of providing government-backed risk insurance and military escorts to tankers have not persuaded shipping companies to resume operations.
“Exports will not resume until ship owners, operators, and insurers feel sufficiently safe from the threat environment posed by Iranian warships and aircraft, missiles, drones, speedboats, and naval mines,” said an email from Clayton Seigle, an energy and geopolitics scholar at the Center for Strategic and International Studies.
The Trump administration has further tried to tamp down oil prices by easing some sanctions on Russia. It provided a waiver that allows India to purchase Russian oil for 30 days, and Treasury Secretary Scott Bessent has said further sanctions relief is possible.
Diesel prices are surging even faster than gasoline, spelling more trouble for the economy.
Diesel hit $4.66 a gallon Monday, up nearly 90 cents from a week ago. Analysts widely expect it to spike past $5 within weeks. It is already nearly $6 in California.
Diesel is used in the shipping of almost every consumer product, so the rocketing cost of the fuel is certain to make goods more expensive.
UPS, the largest shipping company in the U.S., has already tacked on a weekly fuel surcharge.
Container shipping companies are starting to do the same. And farmers also may soon be raising their prices, as they rely on diesel to power their industrial equipment.
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