Oil prices surged Wednesday following a new round of military strikes exchanged between the United States and Iran, representing the most significant flare-up in tensions since the two countries agreed to a ceasefire just last month. President Donald Trump declared that their memorandum of understanding was now “over.”
The U.S. launched strikes against Iranian targets on Tuesday in response to several oil tankers being struck by projectiles in the Strait of Hormuz over recent days. Iran responded with attacks on American military bases in the region.
Oil settled about 3% higher on Tuesday following the exchanges and after Washington announced it would revoke a sanctions waiver on Iranian oil, set to take effect July 17. By early Wednesday, Brent crude was trading above $78 per barrel following Trump’s comments about the MoU. Market analysts suggest traders may be unsettled, but many will likely interpret the situation as a temporary flare-up rather than a full-scale return to hostilities — and view the president’s statements as largely posturing.
Adding to the turbulence, a selloff in semiconductor stocks continued on Tuesday. The SOX chip index dropped nearly 5%, while the Nasdaq fell more than 1%. Elon Musk’s SpaceX was swept up in the downturn as well, losing nearly 7% on its first day as a member of the Nasdaq 100 index.
In Asia on Wednesday, South Korean chipmakers Samsung and SK Hynix saw their shares close lower again, even though Samsung had reported impressive earnings results the day before. European markets opened in negative territory, and Wall Street futures were pointing sharply downward ahead of the opening bell.
South Korea’s chip-heavy KOSPI stock index dropped more than 5% on Wednesday, putting it roughly 20% below a record closing high set in late June — officially placing it in bear market territory. Despite this, the index remains up more than 70% for the year.
In currency markets, New Zealand’s dollar strengthened after that country’s central bank raised interest rates by a quarter-point to 2.5%, citing the need to fight inflation, with policymakers signaling further tightening is “likely to be required.”
The rate hike serves as a reminder of the persistent threat of inflation worldwide — a concern that is only intensified by the renewed uncertainty hanging over energy supplies in the Middle East. Bond prices declined broadly on Wednesday.
On the domestic monetary policy front, the Federal Reserve is set to release minutes from its June policy meeting Wednesday, which may offer additional insight into how policymakers are thinking about the economy. Those minutes were written before the recent developments in the Strait of Hormuz, underscoring how quickly economic conditions can shift.
Key events to watch Wednesday include the release of the Fed’s June meeting minutes, a U.S. 10-year note auction scheduled for 6 p.m. EDT, and the second day of the NATO summit taking place in Ankara, Turkey.
