On Thursday, oil prices experienced a notable surge, raising concerns about a corresponding increase in gasoline prices as optimism for a swift resolution to the ongoing conflict in Iran diminished following President Donald Trump’s recent address to the nation.
The financial markets reflected this uncertainty with major stock indices experiencing volatility influenced by mixed news regarding the Middle East situation. Initially, U.S. stocks began the day with sharp declines, but major indexes nearly recovered after comments from the Iranian deputy foreign minister suggested that Iran would propose a “new navigation regime” in the strategically vital Strait of Hormuz after the conflict subsides. This statement injected a glimmer of hope into the markets regarding the future stability of a key waterway through which a significant portion of the world’s oil supply travels.
By 2:00 p.m. ET, the S&P 500 was showing a modest decline of 0.3%, while the Nasdaq Composite fell by 0.4%. The Dow Jones Industrial Average was down by approximately 200 points, although the Russell 2000 index, which focuses on smaller companies, saw a slight increase.
Despite the remarks surrounding Iran’s future plans for the Strait of Hormuz, oil prices remained elevated. U.S. crude oil surged by 12%, surpassing $112 per barrel, while Brent crude, the international benchmark, rose by 8% to more than $109 per barrel.
In his address the previous evening, President Trump stated that the conflict would conclude “shortly,” yet he committed to carrying out further “extremely hard” strikes on Iran over the next few weeks. Notably absent in his speech was a clear roadmap toward a ceasefire or plans for reopening the Strait of Hormuz. Trump suggested, “The strait will open up naturally,” while emphasizing that military operations would persist until the U.S. achieves its objectives.
Following his speech, oil prices began to rise, reversing a two-day decline. On Thursday, the national average for a gallon of unleaded gas reached $4.08, a significant jump from $2.98 before the onset of the war. GasBuddy analyst Patrick De Haan indicated that motorists could expect to see the impact of rising oil prices at the gas pump by mid-day on Thursday.
Market analysts expressed concerns over the potential consequences of U.S. escalation in Iran, particularly highlighting the possibility of an Iranian response that could inflict further damage on Gulf infrastructure, as outlined by UBS Global Wealth Management CIO Paul Donovan.
Meanwhile, British Foreign Secretary Yvette Cooper convened a video call with representatives from 35 nations, including various Gulf states, to discuss strategies for reopening the Strait of Hormuz. Notably, the United States did not participate in this meeting. During the call, Cooper emphasized the need for the conflict to de-escalate before any collective military capabilities could be mobilized.
In the bond market, U.S. government bonds traded around breakeven, with yields dipping slightly lower. However, the escalating energy prices have reignited fears of inflation. Since the onset of the war, yields have increased from approximately 3.96% on February 27 to around 4.30% by Thursday.
As of now, the average 30-year fixed mortgage rate stands at 6.41%, up from 5.99% just before the war began, according to Mortgage News Daily. Analysts from Bank of America projected that headline inflation, as measured by the Federal Reserve’s preferred PCE index, could “surge imminently,” with expectations of peaking near 4% this quarter, up from 2.8% in January.
Inflationary trends are also becoming apparent overseas, as Eurozone inflation spiked to 2.5% in March, up from 1.9% in February.
Thursday also marked the final trading session of the week for equities, as U.S. markets will be closed for Good Friday. Historically, there tends to be increased selling pressure before long weekends, especially during periods of geopolitical uncertainty, as investors seek to avoid being caught in positions while significant events unfold rapidly.
