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Stocks are poised to tumble when U.S. financial markets open on Wednesday after President Trump said the ceasefire with Iran is “over” and declared it “a waste of time dealing with them.”
Oil prices jumped 6% on concerns that a re-escalation of hostilities would jeopardize the flow of oil through the Strait of Hormuz.
Mr. Trump’s remarks come after attacks by Iran’s Islamic Revolutionary Guard Corps on three tankers in the Strait of Hormuz, which were followed by U.S. strikes. Brent crude rose 6.3% to $78.80 a barrel, while West Texas Intermediate, the U.S. benchmark, climbed 6.4% to $75.
Before Wednesday’s spike, West Texas Intermediate had fallen below $70 a barrel, roughly returning to levels seen before the start of the Iran war in late February.
Stock futures are pointing to declines, with Dow Jones Industrial Average futures falling 527 points, or 1%. S&P 500 futures declined 0.8%, and Nasdaq futures are down 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, said 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.”
Higher oil prices could complicate the inflation outlook by raising gasoline and transportation costs, potentially prompting the Federal Reserve to keep interest rates higher for longer.
“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.
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as part of an interim peace deal between the U.S. and Iran and exempted Iranian oil sales from U.S. sanctions, would be superseded by a narrower waiver.
The rally in oil prices may be short-lived, according to Alex Kuptsikevich, chief market analyst at FxPro, a foreign exchange trading firm. He noted that Mr. Trump has also 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.
