FTSE 100 Closes Lower Amid Iran War Oil Price Surge
Stock prices in London finished in negative territory on Wednesday, with the FTSE 100 index closing down 98.31 points, or 0.9%, at 10,305.29. The broader market downturn came as investors anxiously awaited the US Federal Reserve's interest rate decision and reacted to escalating developments in the Iran conflict, which sent oil prices rocketing and stoked fears of a potential "supply crisis".
Oil Prices Spike Following Gulf Strikes
Brent crude oil was quoted at $108.21 per barrel at the time of London's market close, a significant increase from $101.95 late on Tuesday. Although this remains below the conflict's peak of $119.25, it is substantially higher than the $73.08 level recorded on February 27, before tensions dramatically escalated.
The latest price surge follows US-Israeli strikes that targeted Iranian facilities at the South Pars/North Dome mega-field, a major Gulf gas asset that supplies approximately 70% of Iran's domestic natural gas and represents the world's largest known gas reserve.
Market Panic and Analyst Commentary
"If you thought it would be plain sailing into the FOMC meeting later this evening, think again," remarked Kathleen Brooks of XTB. "Markets are back in panic mode. The Brent crude oil price is surging and is higher by another 5% today, the gold price is down 2.8% and is below $5,000 per ounce, bonds are getting sold off and yields are surging and the dollar is rallying."
She continued: "Iran has warned Gulf nations that their energy assets and infrastructure are now legitimate targets...The risk is that an oil shipping crisis is morphing into an oil supply crisis. Unsurprisingly, this has spooked a market that was willing to grasp hopeful signs that tankers were slowly getting through the Strait of Hormuz, and that countries like Saudi Arabia and Iraq could get oil into the market through alternative routes."
London Market Movements
In London trading, energy giants showed mixed results with BP up 0.7%, while Shell lost 0.4%. Gold miners suffered significant losses, with Endeavour down 3.9%, Fresnillo down 3.5%, and Antofagasta down 3.0%. Gold itself was quoted lower at $4,875.60 per ounce against $4,994.57 on Tuesday.
The FTSE 250 ended down 95.36 points, 0.4%, at 22,080.77, and the AIM all-share closed down 6.93 points, 0.9%, at 753.21.
Despite the ongoing conflict, travel stocks demonstrated resilience with easyJet up 1.5% and British Airways parent International Consolidated Airlines up 1.5%. Defence stocks climbed, with Babcock rising 2.1%, Melrose up 1.1% and Rolls-Royce gaining 0.7%.
Currency and Global Market Impact
The pound was quoted lower at $1.3334 at the London close, compared to $1.3345 on Tuesday. Against the euro, sterling stood at 1.1577, similar to 1.1576 a day prior.
In New York, stocks were also lower with the Dow Jones Industrial Average down 0.8%, the S&P 500 index down 0.5%, and the Nasdaq Composite down 0.5%. European equities followed suit, with the CAC 40 in Paris closing down 0.1% and the DAX 40 in Frankfurt ending down 0.9%.
Bond markets showed movement with the yield on the US 10-year Treasury quoted at 4.22%, widening from 4.20%, and the yield on the US 30-year Treasury quoted at 4.86%, widening from 4.85%.
Political and Economic Context
US President Donald Trump posted angrily on his Truth Social site, suggesting he could leave US allies to secure the Hormuz strait independently since they have refused to fight alongside US forces against Iran in the crucial shipping lane.
Additionally, US producer prices rose more than expected in February, with the producer price index for final demand increasing 0.7% month-on-month, above the consensus expectation of 0.3%. On an annual basis, producer prices were up 3.4%, accelerating from 2.9% in January.
"This data has cast doubt on a Fed rate cut for this year," XTB's Ms Brooks said. "There is now just less than one cut priced in, with US interest rates expected to end the year at 3.43%. The market is currently expecting the Fed to prioritise inflation risks over growth, especially since the US is more insulated from the full effects of a spike due to its position as the world's largest energy producer...The Fed is in focus today, but it has no bearing on this conflict. The Fed must react to the situation it finds itself in and today has been a clear sign that this conflict is definitely not over."
FTSE 100 Leaders and Laggards
The biggest risers on the FTSE 100 were Diploma, up 903.5p at 5,933.5p, Burberry, up 24.7p at 1,071.7p, Barclays, up 8.7p at 402.4p, Weir, up 60.7p at 2,922.7p, and Babcock, up 28.0p at 1,394.0p.
The biggest fallers were Metlen Energy, down 1.6p at 35.7p, Fresnillo, down 126.0p at 3,322.0p, British American Tobacco, down 162.0p at 4,382.0p, Endeavour Mining, down 158.0p at 4,406.0p, and Unilever, down 167.5p at 4,712.5p.
