Global Markets Plunge After Trump's Ultimatum to Iran Over Strait of Hormuz
Stock markets across Asia and Europe experienced significant declines at the start of the week, triggered by a stark ultimatum from former US President Donald Trump targeting Iran. On Saturday, Trump declared he was giving Iran a 48-hour deadline, expiring shortly before midnight GMT on Monday, to open the Strait of Hormuz—a critical maritime passage responsible for transporting approximately one-fifth of the world's oil and liquefied natural gas supplies.
Market Reactions and Economic Fallout
The financial repercussions were immediate and severe. In Asia, Japan's Nikkei share index plummeted by 3.4%, China's CSI 300 dropped 2.8%, and South Korea's Kospi fell a staggering 6.5%. European markets mirrored this downturn, with Spain's Ibex declining 1.9%, France's CAC 40 index down 1.5%, Germany's Dax decreasing 1.9%, and the UK's FTSE 100 shedding nearly 1.5%.
Trump's threat included a warning to "obliterate" Iran's power plants if the strait remained closed, a move that has escalated tensions and sparked fears of a broader conflict. In response, Tehran has vowed to "irreversibly destroy" essential infrastructure across the Middle East, including vital water systems, should the US act on Trump's words.
Energy Crisis and Oil Price Surge
The closure of the Strait of Hormuz by Iranian attacks has precipitated a global energy crisis, described by Fatih Birol, head of the International Energy Agency, as equivalent to the combined impact of the twin oil shocks of the 1970s and the economic fallout from Russia's invasion of Ukraine. This disruption has forced the global economy to brace for substantially higher oil prices.
Goldman Sachs has revised its forecast, now expecting Brent crude—the international benchmark—to average $85 a barrel this year, up from previous projections of $77 a barrel. On Monday, oil prices rose 1.2% to $113.34 a barrel, though this remains below the record highs of $199 a barrel seen earlier in the month. Additionally, UK month-ahead gas prices surged 3.1% to 155p a therm, nearly double their pre-conflict levels.
Investor Sentiment and Safe Havens
The spike in energy prices has rattled investors, leading to a slide in gold prices. On Monday, gold's spot price fell 5.8% to $4,226.16 an ounce, as concerns over higher inflation fueled expectations of interest rate hikes. Gold typically becomes less attractive when interest rates rise, as it does not yield returns. Meanwhile, the US dollar, often viewed as a safe haven during volatile periods, edged up slightly, with the dollar index increasing by 0.2%.
Political and Economic Responses
In the UK, Prime Minister Keir Starmer is convening an emergency Cobra meeting with top ministers and Bank of England Governor Andrew Bailey to discuss the economic impact of the Iran crisis. The Treasury stated that discussions will focus on energy security, supply chain resilience, and the international response to the conflict. The situation is increasing pressure on Starmer to announce a support package to assist citizens with rising energy bills, expected to jump by 20% when the current price cap expires at the end of June.
Investors are also closely monitoring the bond market, where the 10-year yield—Britain's benchmark borrowing cost—reached 5% last week for the first time since the 2008 financial crisis. This rise followed the Bank of England's decision to maintain interest rates at 3.75%.
The escalating tensions underscore the fragile state of global markets and the potential for prolonged economic disruption if the standoff over the Strait of Hormuz continues.
