NEW YORK / WASHINGTON
Rising oil prices due to US and Israeli strikes against Iran, and Tehran’s retaliations, leading to a war in the Middle East that have spiked oil prices and stoked the fire that is economic uncertainty, causing Wall Street to bleed trillions of dollars in the first month of the conflict.
Concerns about persisting tensions for an extended period dampened investor risk appetite.
The US and Israel’s attacks on Iran while negotiations between Tehran and Washington were underway, and Tehran’s retaliatory attacks on neighboring energy infrastructure and the closure of the Strait of Hormuz, have paralyzed shipping traffic in the region and disrupted oil flows, sending markets into turmoil.
US stock markets, which US President Donald Trump frequently mentions for their strong performance, have been affected, dominated by selling pressure.
Since the attacks began in late February, Wall Street stocks wiped off trillions of dollars, while rising industrial costs and trade disruptions affected the Dow, which declined 7.7% versus pre-war levels.
The S&P 500 lost 7.8% and the Nasdaq 8.3% in the past month.
The Dow and the Nasdaq indexes entered correction territory as of last month, having fallen more than 10% from their peak.
Trump said he expected oil prices to rise further and stock markets to fall more due to the situation in Iran, but he said the disruption was not as severe as he had anticipated.
The situation, however, seems quite dire. Disruptions in the Strait of Hormuz, accounting for the transit of one-fifth of global oil, were the key driver of pessimism in the markets.
The world is facing one of the most serious energy supply risks since the oil shocks of the 1970s, according to the International Energy Agency (IEA).
Oil prices surged rapidly amid supply concerns since the start of the war, with Brent crude trading between the $70 to $80 range before the war to more than $110 per barrel.
Trump threatened to strike Iran’s energy infrastructure if Tehran did not reopen the Strait of Hormuz to traffic, but he extended the deadline by five days last week.
Oil prices fell after Trump’s statements, leading to a somewhat easing of concerns about the possibility of a ceasefire in the region, but oil rose again later in the week.
Trump said March 26 that he suspended the decision to target Iranian power plants until April 6, while claiming negotiations were underway and positive.
Rising oil prices affected the stocks of airlines, logistics firms and tourism companies the most.
The rise in fuel costs hit US airline stocks hard, as fuel makes up around one-third of their operating costs.
American Airlines, Southwest Airlines and United Airlines lost nearly 30% due to rising fuel costs and airspace restrictions in the region.
Global security concerns and expectations of more expensive airfare prices led to selloffs of tourism stocks.
Shares of some oil and natural gas firms outperformed despite the broader market selloff, as the rise in Brent crude prices boosted profit margins.
ExxonMobil, Chevron and ConocoPhillips rose between 12% to 17, enjoying all-time highs.
Washington made various moves to curb rising energy costs, ranging from tapping into strategic reserves to easing sanctions, but the upward trend continued.
With winter in the rearview mirror and spring in the air, more and more drivers are on the road, boosting demand and contributing to the high gas prices in the US.
The average price of gas was measured at $3.99 per gallon, up from $2.98 a month ago, according to the American Automobile Association (AAA).
Gas prices rose around $1 per gallon during the last month, or by 26.3% year-on-year.
The average gas price could reach $4 in the coming days for the first time since August 2022, AAA warned.
Gas prices vary state by state. California, where gas is the most expensive, saw $5.87, up 50% on an annual basis.
Amid escalating tensions and rising fuel prices affecting sectors like transportation and agriculture, concerns about inflation are on the rise.
The Fed, which has long sought to bring inflation down to its 2% target, could again be facing upward pressure.
Fed Chair Jerome Powell said at a news conference March 18 that the Middle East developments and their effect on the US economy were uncertain, but the energy shock pushed up inflation estimates.
Powell said rising energy prices will increase overall inflation, but it is still too early to tell the scope and the duration of the effects on the economy.
Powell, speaking at a Harvard University lecture Monday, stated that the Fed’s policies are in a good place for now as the bank adopts a wait-and-see approach.
Financial markets expect no easing from the Fed this year despite two rate cut estimates before the conflict.
The possibility of rate hikes this year has again come to the fore.
Meanwhile, government bonds rose and the US dollar got stronger amid rising energy prices, leading to expectations that monetary policy will remain tight for longer.
The US 10-Year bond yield, which was on a downward trend throughout February before the war, shifted by rising from 3.96% at the end of last month to 4.5% as of last week.
The US Dollar Index, which recovered some losses at the start of the year, rose from the range of 97 - 98 before the war to above 100, reaching its peak of the year. The index rose around 3% versus pre-war levels.
*Writing by Emir Yildirim in Istanbul
