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Oil prices jumped above $100 a barrel for the first time since May while US stocks and bonds sold off as Donald Trump said he was weighing a “massive attack” on Iran and tensions escalated across the region.
Brent crude, the international benchmark, rose as much as 7.4 per cent to $101.01 a barrel, after attacks by Iranian-backed Houthi militants in the Red Sea threatened to squeeze global supplies further and reignite a global inflation shock.
Oil extended its blistering rebound this month after the Houthis said they had attacked two Saudi Arabian tankers in the Red Sea following their move to impose a maritime blockade on the kingdom this week, adding to fears that the US and Iran are headed for a return to full-blown conflict.
Trump said in an interview with Axios that he was “considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it.”
Arne Rasmussen, chief analyst at Global Risk Management, described the situation as a “perfect hurricane for the market”.
“You have an escalation in the rhetoric from both sides [in the Iran war] and now the Red Sea attacks. The market was probably caught on the short side. Everything is moving in the wrong direction,” he said.
The Nasdaq Composite dropped 2.6 per cent by late morning in New York as the latest shock from the oil market combined with disappointing earnings from Alphabet and Tesla to trigger a heavy sell-off in tech shares.
The S&P 500 was down 1.4 per cent, with Tesla shares tumbling 14 per cent and Alphabet losing 7.4 per cent.
The oil surge also hit bond markets, as investors bet that big central banks will have to lift interest rates more quickly to contain the resulting inflation. The European Central Bank warned on Thursday that “the full inflationary impact of the energy shock has yet to play out” as it kept borrowing costs on hold.
US 10-year borrowing costs climbed 0.05 percentage points to 4.71 per cent, an 18-month high, while German 10-year yields touched their highest level since 2011 at 3.21 per cent.
The targeting of the Saudi ships raises the spectre of the Houthis closing the Bab al-Mandab Strait, which connects the Red Sea with the Gulf of Aden and the Indian Ocean.
It has become a vital route for Saudi Arabia’s oil exports since Iran seized control of the Strait of Hormuz in the early days of the war. The attacks also risk unravelling a four-year ceasefire between the Houthis and Saudi Arabia.
Brent crude last traded above $100 on May 26 but tumbled in June after Washington and Tehran’s agreement to extend their ceasefire and reopen the strait raised hopes that oil supplies through the waterway would be swiftly restored.
Rising US petrol prices — which topped $4 a gallon earlier this week — are also likely to fuel voter frustration with Trump ahead of November’s midterm elections.
The intervention from the Houthis comes following the breakdown of the ceasefire, with US and Iranian forces trading fire for almost two weeks.
Trump on Thursday warned the Houthis and Iran that they would face “major military punishment” if the attacks continued.
The Houthis are one of the most potent members of Iran’s so-called axis of resistance. But they have largely stayed out of the conflict, apart from firing several barrages of missiles and drones at Israel in March and early April.
There have been concerns, however, that the Houthis will co-ordinate with Tehran to close Bab al-Mandab to pile pressure on energy markets and global trade.
Given the latest attacks, oil prices could exceed the high of $139 a barrel reached in 2022 in response to Russia’s invasion of Ukraine or even the $147 peak of 2008, said Helima Croft, head of global commodity strategy at RBC Capital Markets.
Source:
www.ft.com
