Stocks Drop Due to Iran War Lift the Dollar and Oil – Europe Market Wrap

Stocks fell and the Dollar rose as military operations in the Middle East escalated, sending oil to its highest level in four years and raising concerns that higher inflation would weigh on the global economy.

S&P 500 futures fell 1%, while Asian and European markets fell similarly. Brent crude rose 7.5% to about $79 per barrel as the conflict effectively closed the Strait of Hormuz, a critical artery off Iran’s coast that transports roughly one-fifth of the world’s oil. Natural gas prices in Europe have risen by up to 28%, the highest level since August 2023.

As investors reduced their risk exposure, safer assets became more in demand. Gold approached $5,400 per ounce. The Dollar index rose 0.5%. Meanwhile, short-term Treasury yields climbed as investors considered whether rising oil prices would mean the Fed is less likely to decrease interest rates.

Energy and defence stocks surged, with Exxon stock rising 3.9% in early trade. IAG, which owns British Airways, slumped 5% amid significant flight disruptions in the Middle East.

The Middle East war is adding new headwinds to markets that are already rattled by shifting US tariff policies, disruption from AI, and pressure on private credit. Traders are particularly concerned about how long the battle will endure and how far hostilities will go.