Oil prices have surged past $100 (£74) per barrel, and global stock markets experienced a decline following inconclusive discussions between the United States and Iran over the weekend. President Donald Trump has enacted a blockade of the Strait of Hormuz, targeting Iranian vessels and those ships that have paid tolls for passage, in an effort to restrict Iranian oil exports.
The U.S. Central Command announced that the blockade would commence at 10 a.m. ET (5:30 p.m. in Iran and 3 p.m. in the UK), effectively taking control of maritime traffic through the Strait of Hormuz and blocking access to all Iranian Gulf ports and coastal regions.
This announcement has led to a significant increase in oil and gas prices, reversing a decline that followed a two-week ceasefire between the U.S. and Iran, which had seen crude prices drop below the critical $100-per-barrel mark.
On Monday morning, Brent crude oil climbed almost 7% to reach $101.74 per barrel, while U.S. crude surged over 8% to settle at $104.69 per barrel. Additionally, gas prices rose sharply, with the British wholesale gas contract for May increasing by 11.7% to 122.5p per therm.
Analysts from JPMorgan Chase indicated last week that they anticipate oil prices will remain elevated, consistently above $100 a barrel during the second quarter, with a possible decline later in the year.
Asian stock markets faced a downturn on Monday, with Japan’s Nikkei index falling by 0.7% and Hong Kong’s Hang Seng index dropping by 1%. Conversely, Chinese stocks experienced a slight increase, buoyed by Beijing’s announcement of a strategic initiative aimed at strengthening relations with Taiwan.
European markets also saw a decline, particularly among airline stocks such as Lufthansa, Wizz Air, easyJet, and the parent company of British Airways, IAG. The FTSE 100 index in London decreased by 0.4%, down 45 points to 10,555. Germany’s DAX index fell by 1%, Italy’s FTSE MiB dipped by 0.7%, and Spain’s Ibex dropped by 1.1%. Energy companies like BP and Shell saw gains amidst rising oil and gas prices.
With numerous oil tankers still stranded in the Gulf, the initial ceasefire had raised hopes for the resumption of shipping activities. However, Trump announced the blockade via his Truth Social platform after 21 hours of negotiations between Washington and Tehran in Islamabad concluded without a resolution.
Priyanka Sachdeva, a senior market analyst at Phillip Nova, remarked, “In today’s environment, every barrel of risk added to oil markets carries an inflation price tag for the global economy.” She further noted that the market’s response highlights a crucial reality: the risks associated with the Strait of Hormuz are not merely hypothetical; they are structural and tangible.
Expectations surrounding interest rates have also shifted, with investors now estimating an 84% likelihood of two increases from the Bank of England this year to address rising inflation, up from 60% on Friday. Prior to the situation with Iran, the central bank was expected to lower rates.
The price of gold decreased by 0.4% to $4,730.75 per ounce, reflecting inflation worries stemming from the blockade and leading traders to lower their expectations for potential Federal Reserve rate cuts this year.
Michael Brown, a senior research strategist at Pepperstone, commented, “While crude prices have risen and stocks have dipped slightly, the overall market reaction to the weekend’s news of a U.S. Navy blockade of the Strait of Hormuz has been relatively muted, as market participants perceive this move largely as a negotiating tactic by President Trump.”
A report released by the United Nations Development Programme on Monday warned that over 32 million people globally could be pushed into poverty due to the economic repercussions of the conflict with Iran, with developing nations likely to bear the brunt of these effects.
