Oil prices jumped and stock futures slipped Sunday evening, indicating concern among investors about the possibility of economic fallout from the ongoing unrest in the Middle East following U.S. strikes against Iran’s nuclear facilities.
The major focus is on oil. Iran remains a major international oil supplier, and it also sits on the Strait of Hormuz, a heavily trafficked waterway in the Persian Gulf that is a key transit channel for about one-fifth of the world’s oil supply.
Concerns centered on whether Iran would begin limiting or shutting down access to the strait. U.S. Secretary of State Marco Rubio said in a statement that closing the strait would be tantamount to “economic suicide” for Iran and called on China, Iran’s top trading partner, to head off any attempt by Iran to affect traffic.
U.S. and global oil benchmark prices opened up 4% Sunday evening, underscoring the concerns about what the conflict means for the world’s oil supplies. Those gains had eased slightly by 9 p.m. Sunday. Oil prices already gained about 3% last week in the wake of Israel’s initial strikes against Iranian targets and Iran’s retaliatory missile attacks.
Stocks also slid Sunday. S&P 500 futures contracts opened about 0.6% in the first hour of trading, while Dow Jones Industrial Average futures fell about 250 points, or 0.6%. Nasdaq 100 futures dropped 0.7%. Like oil, they had pared those opening losses somewhat by 9 p.m. U.S. markets officially open at 9:30 a.m. ET Monday.
“Should oil exports through the Strait of Hormuz be affected, we could easily see $100 oil” or an increase in U.S. gas prices by 75 cents per gallon, Andy Lipow, president of the consulting firm Lipow Oil Associates, said in a note to clients Sunday.
In a worst-case scenario in which oil prices rose to at least $120 a barrel, U.S. gas prices would increase as much as $1.25 per gallon, Lipow said.
In a follow-up email, Lipow said that even if the strait does not officially close, any action by a tanker company to pre-emptively reduce its footprint there represents ”a de facto supply disruption.”
Iran’s state-owned media reported that Iran’s parliament backed closing the strait — but that the final decision lies with Iran’s national security council, according to the report.
Any move by Iran to alter traffic in the strait could also hurt its own economy — particularly commerce with China.
On Sunday, a department of the U.K. Royal Navy said it observed “electronic interference in the Strait of Hormuz.” At least two massive supertankers that had entered the strait were reported to have made U-turns. Marine tracking websites also showed the vessels turning about halfway through the strait.
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil,” Rubio said in an interview on Fox News. China is Iran’s most important oil customer, and they maintain friendly relations.
Iran may still be assessing the ultimate damage to its nuclear facilities as it contemplates its next move. The International Atomic Energy Agency said Sunday that while it had confirmed that the Fordo, Natanz and Isfahan sites had been hit, it was not immediately possible to assess the damage at the Fordo site.
Until last week, U.S. stocks had been enjoying a substantial, if volatile, recovery from the lows following President Donald Trump’s reciprocal tariffs announcement in April. That momentum reversed after Israel announced last weekend it had struck key Iranian military and nuclear targets, prompting retaliatory missile strikes on Israeli targets by Iran.
JPMorgan analysts said Sunday that investors had voiced concerns to them last week that the Iran-Israel conflict would spread, “and those concerns have been materialized.”
“Trump’s statement that this might be the only US attack or might begin a series of attacks brought us little certainty,” the analysts added in a note to clients. “Moreover, we do not see an obvious route to a political settlement to the military conflict, which makes us think the conflict, like the one in Gaza, could last longer than many investors think.”
Year to date, the S&P 500 is up less than 2%.
