By Mike Murphy
Members of Iran’s Red Crescent society stand near smoke plumes from an ongoing fire following an overnight airstrike on the Shahran oil refinery in northwestern Tehran on Sunday.
U.S. stock-market futures fell on Sunday as crude futures surged above $100 a barrel for the first time since 2022 amid growing fears about the economic effects of the conflict with Iran.
West Texas Intermediate crude (CL.1) (CLJ26) jumped more than 25%, to around $114 a barrel, after surging a record 36% last week, while Brent, the global benchmark (BRN00) (BRNK26), rose about 18% to around $115 a barrel, after rising 27% last week.
The escalating conflict “definitely has got some panic buying going,” Phil Flynn, senior market analyst at the Price Futures Group, said in emailed commentary Sunday.
According to Dow Jones Market Data, West Texas crude peaked Sunday at $115.67 a barrel, its highest point since July 2022. If the gains hold up through the trading day, WTI could see its largest one-day dollar gain since April 2020, and the largest one-day percentage gain since May 2020, amid the pandemic lockdowns. WTI hit a record high of $145.29 a barrel back in July 2008.
Dow Jones Industrial Average futures (YM00) fell more than 1,000 points, or 2.3% on Sunday. S&P 500 futures (ES00) were down 2.2% and Nasdaq-100 futures (NQ00) slid 2.5%. Asian markets continued to tumble, with Japan’s Nikkei 225 JP:NIK down more than 7% and South Korea’s Kospi KR:180721 off almost 8%.
Gold (GC00) and silver (SI00) futures declined, and bitcoin (BTCUSD) slumped to around $66,000. The U.S. Dollar Index DXY, which measures the dollar against a basket of rival currencies, was up 0.6%.
The Dow DJIA ended last week down 3%, its worst weekly showing since President Donald Trump announced his “liberation day” tariffs nearly a year ago, while the S&P 500 SPX slid 2% and the tech-heavy Nasdaq COMP lost 1.2%.
In Iran on Sunday, Israel struck four oil storage facilities in Tehran, creating a massive, toxic plume of smoke over the city, while Iran struck a water desalination plant in Bahrain. Later in the day, Iranian state TV announced Mojtaba Khamenei – the son of Ayatollah Ali Khamenei, who was killed in a strike last weekend – had been named the country’s new supreme leader.
In a social-media post Sunday, Trump said oil prices “will drop rapidly when the destruction of the Iran nuclear threat is over,” adding that price hikes are “a very small price to pay” for peace. “ONLY FOOLS WOULD THINK DIFFERENTLY!”
As the conflict with Iran extends into its second week and oil tankers remain effectively blocked from the Strait of Hormuz, analysts and investors are becoming more concerned with longer-term effects on the global economy if the flow of oil from the Persian Gulf remains constrained. A number of Middle East countries, including Kuwait, have also cut their crude output as storage space is running out.
Read more: Oil prices are the No. 1 thing investors are watching right now. Here’s why.
“Concerns that the strait [being] shut for some period of time could push oil prices to $150 a barrel or higher seems to be the driving force of what’s going on,” Flynn of Price Futures Group said, adding that “The attacks on the Iranian infrastructure over the weekend … have really got this surge moving.”
On Sunday, U.S. Energy Secretary Chris Wight said on CNN’s “State of the Union” that “We’re not too long, I think, before you will see more regular resumption of ship traffic through the Strait of Hormuz,” adding that in a “worst-case” scenario, the resumption of normal tanker traffic would take “a few weeks… not months.”
The Trump administration has also offered to provide up to $20 billion in reinsurance for tankers to resume navigating the strait, although there has been skepticism as to whether that’s nearly enough to cover the risks.
But U.S. reassurances were not enough to convince investors Sunday.
“The world’s most important commodity has crossed the Rubicon, and the ripple effects are only beginning to spread,” Stephen Innes, managing partner at SPI Asset Management, said in a Sunday note.
“Oil above $100 is not just a commodity rally,” he continued. “It becomes a tax on the global economy. At that level, economists typically pencil in a roughly 0.7 percentage-point lift in global inflation and a 0.4 percentage-point drag on growth. That combination does not scream crisis yet, but it starts whispering a word that central bankers dread: Stagflation.”
Higher oil prices are felt not just at the gas pump – where U.S. prices jumped nearly 27 cents a gallon last week, according to AAA – but in the price of nearly every product that needs to be transported, causing inflation to rise, which in turn affects Federal Reserve policy.
Now the Fed is faced with a likely inflation spike, which combined a disappointing jobs report Friday raises the risk of stagflation, which is characterized by high inflation, lower economic growth and rising unemployment.
See more: Fed ‘utterly paralyzed’ as Iran conflict stokes stagflation fears
This week will see the release of more inflation data, with February’s consumer-price index due Wednesday and January’s delayed personal-consumption expenditures index coming on Friday.
Fed officials will next meet to discuss interest rates on March 17-18; they are widely expected to keep rates unchanged.
Wedbush analysts said Sunday that, for now at least, the conflict represents “near-term volatility, not structural market damage” to the U.S. stock market, noting that “market breadth is expanding, which is inconsistent with recession positioning.”
But the analysts, led by Seth Basham, said “market risk is building,” and “de-escalation in the Mideast and private credit may be necessary for the market to regain its footing.”
-Mike Murphy
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(END) Dow Jones Newswires
03-08-26 2224ET
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