Oil prices spiked on Wednesday to the highest level in weeks and stocks dropped after President Trump said that he thought the Iran cease-fire was “over” amid a volatile 24 hours in the Persian Gulf region.
The Trump administration launched a series of strikes on Iran and revoked a waiver that had allowed Iran to sell oil. The actions against Iran on Tuesday were in retaliation for attacks on tankers this week in the Strait of Hormuz, a crucial conduit for the world’s energy.
U.S. Central Command said that it hit over 80 targets in Iran, including dozens of small boats used by the Iranian military, “to degrade Iran’s ability to continue attacking international commerce.” Iran’s military responded by targeting 85 U.S. military sites in Bahrain and Kuwait, prolonging a retaliatory cycle that could impede the nascent recovery in shipping traffic in the region.
Oil prices rise sharply, breaking a relative period of calm.
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Brent crude oil, the international benchmark, rose 6 percent, to above $78 a barrel, its highest level in over two weeks. Although down significantly from its peak during the worst of the fighting, the recent jump pushed oil back above its prewar price of around $72 a barrel, where it had hovered for several days.
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West Texas Intermediate crude, the U.S. benchmark, also jumped, to more than $74 a barrel. This grade of crude traded at $67 per barrel before the war.
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Daniela Hathorn, an analyst at Capital.com, a broker, said that investors had viewed the cease-fire as “fragile but ultimately durable,” until Mr. Trump’s comments on Wednesday called that into question. “Any suggestion that negotiations have collapsed raises the risk of renewed supply interruptions or tighter sanctions,” Ms. Hathorn said in a statement.
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Gasoline prices don’t move in lock step with crude. The U.S. national average price of gas was $3.80 a gallon on Wednesday, according to the AAA motor club. That price remains more than 27 percent higher than it was at the eve of the war in late February, amid signs that gas stations are maintaining wider profit margins amid the volatility.
A tentative recovery in shipping appears at risk.
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The attacks on Tuesday on three commercial vessels, including a Saudi oil tanker and a Qatari liquefied natural gas carrier in the waters around the Strait of Hormuz, threatened to throttle the flow of energy. Ship traffic through the strait had recovered somewhat as shipowners gained more confidence in sending vessels through the contested waterway.
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The Joint Maritime Information Center, a multinational organization that assesses threats on high-risk shipping routes, said on Tuesday that the risk of sending ships through the strait was “severe,” up from “substantial,” with further “hostile action considered likely under current conditions.”
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On Tuesday, 41 ships passed through the strait in both directions, according to Kpler, a maritime data company. Before the war, more than 130 ships a day routinely passed through the choke point between Iran and Oman. Many of the vessels that went through the strait this week used the Iranian corridor, which the Iranian authorities, trying to assert more control over the waterway, have said is the only viable route.
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Only two of the ships that transited on Tuesday took the Omani route, through which the U.S. Navy is providing guidance. The middle of the strait is considered dangerous because of the risk of mines laid by Iran’s military. Overall volumes of traffic were difficult to assess because many ships have turned off their location tracking devices.
Stock markets turn lower.
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Stock market investors have generally seemed more focused on the prospects for technology companies and the build-out of artificial intelligence systems than the effects of the war in Iran. But the latest burst of fighting in the Gulf appeared to rattle investors.
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Futures for the S&P 500 fell 1 percent, suggesting that stocks will slip when markets open in New York. Shares of major tech companies have recently been hit by fears that enormous investments in A.I. systems may not pay off as handsomely as expected, with semiconductor companies coming under pressure in recent trading sessions.
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Stocks in Europe and Asia also fell on Wednesday, with declines accelerating as the fighting in the Gulf escalated.
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Still, many market strategists remain bullish. “The A.I. theme is intact, and strong earnings are on the way,” Louis Navellier, a longtime money manager, wrote in a research note. “The Iran situation still casts a shadow, with the chance for sudden high escalation still not out of the question,” he added, but an eventual resolution would be “a strong catalyst for a meaningful relief rally.”
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