U.S. stocks were set for a sharp drop at Wednesday’s open after President Trump said the ceasefire with Iran was “over,” adding that it was “a waste of time dealing with them.”
Oil prices surged 6% as traders grew concerned that renewed fighting could threaten crude shipments through the Strait of Hormuz.
The president’s comments followed attacks by Iran’s Islamic Revolutionary Guard Corps on three tankers in the Strait of Hormuz, after which the U.S. carried out strikes. Brent crude advanced 6.3% to $78.80 a barrel, while West Texas Intermediate, the U.S. oil benchmark, rose 6.4% to $75.
Prior to Wednesday’s jump, West Texas Intermediate had slipped below $70 a barrel, nearly erasing the gains recorded since the Iran war began in late February.
Equity futures signaled a weaker start to trading, with Dow Jones Industrial Average futures down 527 points, or 1%. S&P 500 futures fell 0.8%, while Nasdaq futures dropped 1.3%.
“The ceasefire between the U.S. and Iran was always fragile, and some flare-ups were inevitable, unfortunately,” Ryan Sweet, chief global economist at investment adviser Oxford Economics, wrote in a report. “The question is whether this represents a bump in the road or whether we’re emerging from the eye of the storm.”
A sustained rise in oil prices could make the inflation picture more difficult by lifting gasoline and transportation expenses, possibly giving the Federal Reserve more reason to hold interest rates elevated for longer.
“If the peace deal breaks, and it’s too early to tell, it won’t just raise oil prices; it would also increase pressure on AI supply chains in Asia, force central banks to be hawkish, tighten financial conditions and could shift the outcome of the U.S. midterms,” Sweet said.
In another sign of renewed tensions, the Trump administration on Tuesday revoked a waiver that permitted Iranian oil sales, a key source of revenue for the regime, after attacks on tankers in the Strait of Hormuz.
The Treasury Department said that “General License X,” which was issued two weeks ago as part of an interim peace deal between the U.S. and Iran and exempted Iranian oil sales from U.S. sanctions, would be superseded by a narrower waiver.
Other Wall Street watchers expect the latest outbreak of violence to recede.
“Stocks took a dive around 4 am ET after Trump declared that the Iran ceasefire was ‘over,’ and while the current détente is certainly under strain, we continue to think the White House is extremely reluctant to escalate militarily and fully return to hostilities and therefore, a deal remains much more likely than not,” Vital Knowledge analyst Adam Crisafulli said Wednesday in a research note.
Alex Kuptsikevich, chief market analyst at FxPro, a foreign exchange trading firm, also noted that Mr. Trump has recently expressed a commitment to resolving the conflict through diplomatic means, while world energy markets have adapted to the disruption in oil supplies.
“The market has adapted to the reduction in traffic through the Strait of Hormuz, found alternative routes, and global demand has fallen,” Kuptsikevich said.
Alain Sherter
contributed to this report.
