US stock markets tumbled on Monday as a sharp spike in oil prices following the Middle East conflict rattled investors and raised fears about the resilience of the global economy.
The S&P 500 fell 1.3%, coming off its worst week since October. The Dow Jones Industrial Average dropped 721 points, or 1.5%, to 9:35 a.m. Eastern time, while the Nasdaq Composite declined 1.2%, according to market data reported by AP .
The decline followed even steeper losses across Europe and Asia as investors tracked the surge in crude oil prices after the war involving the United States, Israel and Iran intensified.
Early Monday, the price of Brent crude — the international benchmark — briefly touched $119.50 per barrel, its highest level since the summer following Russia’s invasion of Ukraine in 2022. Prices later eased, with Brent crude trading at $101.76 per barrel, still 9.8% higher than Friday.
Meanwhile, US benchmark West Texas Intermediate crude jumped 9.6% to $99.59, after briefly surging to $119.48 per barrel.
The sharp rise in oil prices has renewed fears of stagflation, a situation where economic growth stagnates while inflation remains high.
Higher fuel costs could strain household budgets already under pressure from inflation and increase operational costs for companies.
Markets partly stabilised after reports that major economies may coordinate a response to rising oil prices.
Historically, the US stock market has rebounded relatively quickly from geopolitical conflicts, including Russia’s invasion of Ukraine in 2022, provided oil prices do not remain elevated for an extended period. Despite recent volatility, the S&P 500 remains within 5% of the record level reached in January.
Some investors believe the current decline could offer buying opportunities if energy markets stabilise.
“We continue to believe that the current acute shortage of oil will be reversed in the coming months as new supply comes online and oil should drop significantly,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.
However, much will depend on the situation in the Strait of Hormuz, a key shipping route off Iran’s coast through which roughly 20% of the world’s oil typically passes. Tanker traffic has slowed sharply due to fears of possible Iranian attacks.
Oil strategists at Macquarie Research warned that if the disruption persists, prices could climb significantly.
“Although we are not attempting to predict how long Hormuz transit will be substantially or completely curtailed, we are growing more confident that without an agreement and a fast cessation of all kinetic activity, the crude market will begin to break in days, and not in weeks or months,” strategists led by Vikas Dwivedi said in a report.
Rising fuel costs have hit sectors with heavy energy consumption the hardest. Carnival fell 7.3%, while United Airlines dropped 6.9% and Old Dominion Freight declined 3.8%.
Retailers also faced pressure, with Best Buy falling 4.4% and Williams-Sonoma dropping 4%, as higher fuel prices threaten consumer spending and increase shipping costs.
Stock markets abroad also posted sharp losses. South Korea’s Kospi sank 6%, Japan’s Nikkei 225 fell 5.2%, and France’s CAC 40 dropped 1.7%.
Geopolitical tensions continued to escalate, with both sides targeting new locations over the weekend. Bahrain accused Iran of striking a desalination plant vital for drinking water supplies, while Israel struck oil depots in Tehran, sending up thick smoke and triggering environmental alerts.
Meanwhile, US President Donald Trump said the current rise in oil prices is acceptable in the short term.
“Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace,” he said on his social media platform.
In the bond market, the yield on the 10-year US Treasury remained at 4.15%, unchanged from late Friday. Yields are being pulled higher by inflation concerns linked to rising oil prices but are also facing downward pressure from worries about slowing economic growth.
Concerns about the economy intensified after a weak US jobs report released Friday showed employers cut more jobs than they added last month, raising fresh doubts about the strength of the labour market.
