U.S. stock futures indicated a significant shift towards a risk-averse sentiment Sunday evening as investors reacted to the ongoing U.S.-Israeli bombings of Iran that occurred over the weekend.
This market selloff follows stark warnings from President Donald Trump, who cautioned that further casualties are anticipated from what has been termed Operation Epic Fury. Trump has suggested that the conflict with Iran may be prolonged, stating on social media that the bombings will persist “as long as necessary to achieve our objective of PEACE THROUGHOUT THE MIDDLE EAST AND, INDEED, THE WORLD!”
In terms of market activity, futures linked to the Dow Jones industrial average dropped by 368 points, reflecting a decline of 0.72%. Meanwhile, S&P 500 futures fell by 0.53%, and Nasdaq futures decreased by 0.54%.
In the oil market, U.S. oil futures surged 6.1% to $71.12 per barrel, with Brent crude prices climbing 6.6% to reach $77.56. Reports suggested that in over-the-counter trading earlier on Sunday, Brent prices spiked by 10%, nearing $80 per barrel. Iran, responsible for pumping 4.7 million barrels daily last year—which accounted for approximately 4.4% of global oil supplies—has caused increasing concern regarding potential supply disruptions.
The chief risk revolves around the possibility of Iran closing the Strait of Hormuz, a crucial chokepoint for approximately 20% of the world’s oil exports. Analysts estimate that any such move by Iran could drive oil prices up to $100 per barrel. The Islamic Revolutionary Guards Corps has issued warnings to vessels, declaring that passage through the strait is prohibited. Reports also indicate that they have attacked three oil tankers with missiles, exacerbating fears and leading to a halt in ship traffic.
According to shipping data compiled by Reuters, hundreds of oil and liquid natural gas tankers have anchored or remained stationary near the Strait of Hormuz after tanker owners and trading houses opted to suspend shipments as a precaution. Greece’s shipping ministry has advised vessels to steer clear of the Persian Gulf, Gulf of Oman, and the Strait of Hormuz. Major shipping company Maersk announced a suspension of all vessel crossings through the strait until further notice.
A closure of the strait would disproportionately impact Asia, where many economies rely heavily on oil imports through these shipping lanes. Portfolio manager Idanna Appio emphasized that the situation poses considerable challenges for Asian nations.
Alan Gelder, senior vice president at Wood Mackenzie, noted that it could take weeks for export flows to resume, even under an optimistic scenario where Tehran collaborates with the U.S. Until then, the risk of rising oil prices remains significant—Gelder likened the current situation to the initial aftermath of Russia’s invasion of Ukraine in 2022, which saw oil prices soar to $125 per barrel.
While OPEC+ has agreed to increase oil production by 206,000 barrels per day beginning in April, Gelder cautioned that such a decision might prove ineffective if shipments through the Strait of Hormuz do not resume.
In commodity markets, gold prices climbed 2% to $5,353 per ounce, while silver rose by 1.9% to $95.06. The yield on the 10-year Treasury remained stable at 3.964%. The U.S. dollar saw a slight increase of 0.28% against both the euro and the yen.
In Asian currency markets, early indicators, particularly concerning the Aussie dollar, signaled a defensive posture among investors, though not yet indicating a severe disruption. Appio suggested that the current situation does not resemble a liquidity crisis.
Alongside escalating tensions in the Gulf, Iran has reportedly targeted Bahrain, Qatar, and the UAE using missiles and drones, contributing additional risk to the regional landscape. However, Appio indicated that many Gulf sovereigns are characterized by strong balance sheets, and this might present a buying opportunity for investors rather than signaling structural deterioration. Looking ahead, the question remains whether the current conflict can resolve in a manner that diminishes regional risks.
Investors are bracing for an active week ahead, with key economic indicators set to be released. On Monday, the Institute for Supply Management will publish its monthly manufacturing activity index. On Wednesday, ADP will release its private-sector payroll data, followed by the Federal Reserve’s beige book report on regional business conditions. Thursday will see the issuance of fourth-quarter productivity data, and on Friday, the Labor Department is expected to release its monthly jobs report.
