Stocks Slump as War in Iran Lifts Oil and the Dollar

Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, discusses elevated geopolitical uncertainty and its impact on the markets.

Wall Street’s worries about an inflation resurgence sent bonds slumping as oil surged amid an escalating war in the Middle East, with traders trimming bets on rate cuts. The dollar and gold climbed. Stocks pared losses.

Also weighing on Treasuries were figures showing manufacturing expanded, with input prices soaring at the fastest pace since 2022. Ten-year yields headed toward their biggest advance since October. The S&P 500 pared most of a slide that earlier topped 1% as energy and defense firms rallied while the software group bounced. Airlines tumbled.

As tanker traffic all but halted through the Strait of Hormuz and a big refinery in Saudi Arabia stopped, West Texas Intermediate crude soared 6.5%. Diesel futures jumped more than fifth at one point. In Europe, liquefied natural gas surged after Qatar halted output.

Uncertainty about oil prices may play a big role in determining broader market sentiment, according to Chris Larkin at E*Trade from Morgan Stanley.

“There are more questions than answers right now, but a stabilizing energy picture could have a positive ripple effect, while concerns about a longer-term disruption could have the opposite,” he said.

US-Israeli strikes on Iran quickly escalated into a broader conflict, extending a flight away from riskier assets. President Donald Trump said the attacks could last for weeks and called on the nation’s leaders to capitulate, while the Islamic Republic’s security chief ruled out negotiations.  Gulf Arab states are facing tough choices in the coming hours and days including the possibility of going to war with Iran, with the Islamic Republic intensifying its attacks on US allies across the region.

Iran has launched waves of missiles across the Middle East since the start of US-Israeli attacks on Saturday, saying the primary targets are American military bases. That’s meant strikes on wealthy Gulf nations that are not just global financial hubs and major energy exporters, but hosts to US forces.

Saudi Arabia and the United Arab Emirates have both criticized Tehran over the attacks, but with blasts impacting Dubai’s airport — the world’s busiest — and landmarks such as the iconic Palm Jumeirah Island they face mounting pressure to respond more forcefully.

Those countries, as well as Qatar, have spent the past year mediating to avoid a war because they built their reputations as investment, tourism and expatriate destinations on their ability to remain peaceful in a volatile region. The UAE and Qatar are now privately lobbying allies to help them persuade Trump “Entering the war as military parties is a serious escalation that comes with huge costs,” said Sanam Vakil, director of the Middle East and North Africa program at the London-based Chatham House.

Read More: US Says Iran War Won’t Be Endless as Strikes Engulf Region

“They may not have a choice if Iran continues to widen its attacks on them,” she said. “We will know where they stand in the next 24 to 48 hours.”

A suspected Iranian drone attack halted operations at Saudi Arabia’s largest refinery on Monday, while QatarEnergy ceased liquefied natural gas production at the world’s largest export facility after military attacks. Explosions have been heard in Bahrain, Kuwait, Qatar and the UAE, most likely caused by defense systems intercepting missiles launched by Tehran. Iran attacked an Omani port on Sunday, a move Qatar described as “cowardly.”

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