Stocks sink and oil spikes as traders price in enduring, worsening Mideast war
Stocks and oil are building in more risk premium to deal with the perceived increased probability of a more drawn-out disruption to global energy supplies and shipments.
US stocks are sinking while oil futures spike as traders price in a worsening of the Mideast war that they had hoped would end imminently.
Front-month West Texas Intermediate futures are trading at $117.63, their highest level during this conflict outside of the Sunday night open on March 8. And the SPDR S&P 500 ETF was down about 1.2% at its lows of the day, with the Invesco QQQ Trust faring even worse.
The New York Times is reporting that Iran has stopped negotiation efforts with the US. And after pushing back previous deadlines, US President Donald Trump has pledged that if a deal to end the conflict that includes the reopening of the Strait of Hormuz is not reached by 8 p.m. ET on Tuesday, the US will attack the country’s power plants and bridges.
Stock futures returned to negative territory around 6:25 a.m. after Iranian state-sponsored media reported on explosions at Kharg Island, which handles about 90% of the Gulf nation’s oil exports. Fox News later reported that the US hit military targets but also unintentionally struck a landing dock.
“A whole civilization will die tonight, never to be brought back again. I don’t want that to happen, but it probably will,” Trump wrote in a Truth Social post. “However, now that we have Complete and Total Regime Change, where different, smarter, and less radicalized minds prevail, maybe something revolutionarily wonderful can happen, WHO KNOWS?”
The “WHO KNOWS?” uncertainty of it all is prompting traders in stocks and oil to build in an additional risk premium to deal with the heightened risk of a more drawn-out disruption to global energy supplies and shipments.
That’s the opposite of what markets did on Monday, when investors were in a holding pattern and not building in any sort of event premium related to military action on Tuesday night. The trading range in the SPDR S&P 500 ETF on Monday was the smallest since before the conflict began.
