Financial markets across the globe experienced significant turbulence Thursday as the escalating conflict between Iran and the U.S.-Israeli coalition sent oil prices soaring and investors fleeing to safer assets.
The warfare entered its sixth day with intensified bombing campaigns, according to local witnesses, while Tehran fired missiles toward Israel and threatened retaliation against Americans “wherever they are” following a U.S. attack on a vessel away from the main combat zone. Meanwhile, Republican lawmakers in Washington blocked bipartisan efforts Wednesday to stop American airstrikes.
The conflict expanded Thursday as additional oil tankers came under assault in Persian Gulf waters, with Iranian drones reportedly entering Azerbaijan airspace, heightening concerns the crisis could spread to other energy-producing nations. Initial reports indicate an Iranian explosive-laden remote boat targeted a Bahamas-flagged crude carrier anchored near Iraq’s Khor al Zubair port. A separate tanker off Kuwait’s coast was leaking oil and taking on water following a major blast on its port side.
“Today there’s more hesitancy because of concerns around the potential for the price of oil to get a lot higher. There’s a lot of attention being given to the bottleneck that is occurring in the Strait of Hormuz,” said Kristina Hooper, chief market strategist at Man Group.
Despite traders focusing on Middle Eastern developments, Hooper noted the market’s current “attention span is that of a gnat.” She cautioned about possible volatility following Friday’s U.S. employment report, as investor worries grow regarding artificial intelligence’s impact on job markets.
“You could see an economic data point change the mood quickly. There’s the potential we see that tomorrow with the jobs report,” she said.
American stock indices declined significantly by midday Thursday, with the Dow Jones Industrial Average dropping 776.22 points or 1.59% to 47,963.19. The S&P 500 decreased 40.94 points or 0.60% to 6,828.56, while the Nasdaq Composite fell 47.41 points or 0.21% to 22,760.07.
MSCI’s global stock measure declined 4.04 points or 0.39% to 1,027.55.
European markets also struggled, with the pan-European STOXX 600 index falling 1.29%. However, Asian markets showed mixed results after MSCI’s Asia Pacific index gained 2%. South Korea’s KOSPI surged almost 10%, recovering most of Wednesday’s record losses after President Lee Jae Myung activated a $68 billion market stabilization fund. Japan’s Nikkei climbed nearly 2%, and Chinese stocks rose almost 1% following Beijing’s announcement of a 4.5%-5% annual economic growth target.
Currency markets saw the dollar strengthen as investors sought safe-haven investments, recovering from Wednesday’s brief decline.
The dollar index, measuring the greenback against major currencies including the yen and euro, increased 0.44% to 99.24.
The euro declined 0.45% to $1.1581, while the dollar gained 0.36% against the Japanese yen to 157.59.
Digital currencies also fell, with bitcoin dropping 2.91% to $71,209.57 and Ethereum declining 3.33% to $2,079.12.
Bond markets reflected inflation concerns as U.S. Treasury yields climbed for the fourth consecutive day amid fears that rising oil costs could influence Federal Reserve monetary policy.
The benchmark 10-year Treasury yield increased 5.6 basis points to 4.138% from Wednesday’s 4.082%, while the 30-year bond yield rose 3.5 basis points to 4.7518%.
The 2-year note yield, typically aligned with Fed interest rate expectations, climbed 4.8 basis points to 3.589% from 3.543%.
Energy prices jumped as the conflict disrupted supply chains and shipping routes, forcing several major Middle Eastern oil producers to reduce output. Ship tracking data from Vortexa and Kpler shows approximately 300 oil tankers remain stuck in the Strait of Hormuz, with traffic virtually stopped since the weekend.
U.S. crude oil surged 6.44% to $79.47 per barrel, while Brent crude rose 3.81% to $84.50 per barrel.
Precious metals reversed Wednesday’s gains due to higher Treasury yields and dollar strength. Spot gold dropped 0.98% to $5,085.79 per ounce, while U.S. gold futures fell 1.25% to $5,056.30 per ounce.
