Oil prices surged and stock markets slumped on Wednesday after fresh attacks between the United States and Iran effectively ended the ceasefire agreement, threatening prolonged disruption in the vital Strait of Hormuz. Brent crude oil jumped by around 6.5% to 79 US dollars a barrel in morning trading, after US President Donald Trump declared the ceasefire was over.
Speaking ahead of the Nato summit in Turkey, Trump said “as far as I’m concerned, it’s over”, though he added he would “speak to our negotiators”. The remarks sent oil prices to a high of more than two weeks, having been rising by about 2.5% shortly before his comments.
Ceasefire Unravels After Fresh Attacks
The initial ceasefire deal, announced weeks earlier, had secured safe, toll-free passage through the Strait of Hormuz for 60 days, pending a final agreement on Iran’s disputed nuclear plans. However, the agreement was threatened after Iran targeted tankers transiting through the waterway, which is central to negotiations for a permanent end to the war. In response, US forces said they had launched “over 80” strikes on Iranian targets, and Iran retaliated with strikes against Bahrain and Kuwait. The US also reimposed sanctions on Iranian oil, after waiving them as part of the interim ceasefire.
Richard Hunter, head of markets at Interactive Investor, said: “Reports of an Iranian attack on a liquefied natural gas tanker in the Strait of Hormuz was followed by retaliatory US strikes in the region, leading to a spike of more than 3% in oil prices. The US also reimposed crude oil sales sanctions on Iran, all of which casts real doubts on the longer-term outlook for peace in the Middle East.”
Stock Markets Tumble Across Europe
A sell-off swept across European stock markets on Wednesday. The UK’s FTSE 100 index was down by about 1.6% to 10,493 points shortly after Trump’s remarks, deepening losses from earlier in the morning. Defence giant Babcock was among the biggest fallers with losses of about 4%, while mining giant Antofagasta was also down by more than 4%. Energy giants BP and Shell were among a handful of stocks making gains amid the rebound in oil prices.
Germany’s Dax index sank by about 2.3%, and France’s Cac was down around 2.2% in mid-morning trading. Kathleen Brooks, research director at XTB, commented: “While we have seen escalations in tensions between Iran and the US in recent months, this week’s events are a sign that diplomatic efforts to end the war have ground to a halt. Trump did not explicitly say that he would restart the war against Iran, but he showed his frustration with the Iranian regime while at a Nato summit in Turkey.”
Impact on Global Markets
The renewed hostilities have raised fears of extended disruption in the Strait of Hormuz, a critical chokepoint for global oil shipments. The price of Brent crude had been coming down in recent weeks after the initial ceasefire deal was announced. However, the latest developments have reversed those gains, with oil prices now at levels not seen in over two weeks. The combination of rising oil prices and falling stock markets reflects investor anxiety over the geopolitical instability and its potential impact on the global economy.
