Oil Prices Surge on Iran War Fears: Stocks Mixed, Inflation Concerns Rise

Oil prices surged Monday as escalating tensions in the Middle East raised fears of supply disruptions, although U.S. Stock markets experienced a volatile trading session, ultimately closing mixed. Benchmark U.S. Crude rose 6.3 percent to settle at $71.23 per barrel, and Brent crude, the international standard, climbed 6.7 percent to $77.74, according to the Associated Press.

The S&P 500 initially fell as much as 1.2 percent, with airline and cruise line stocks leading the decline, but recovered to close up 2.74 points at 6,881.62. The Dow Jones Industrial Average dipped 73.14 points, or 0.1 percent, to 48,904.78, while the Nasdaq composite rose 0.4 percent, gaining 80.65 points to close at 22,748.86. The swings reflected investor uncertainty following U.S. And Israeli airstrikes on Iran.

The initial market reaction saw investors flocking to safe-haven assets. Gold prices climbed 1.2 percent, while energy companies saw gains amid the rising price of crude. Exxon Mobil climbed 1.1 percent, and Marathon Petroleum rose 5.9 percent. Defense contractors likewise benefited, with Northrop Grumman climbing 5.9 percent and RTX rallying 4.7 percent. Palantir Technologies, a software provider for defense agencies, jumped 5.8 percent, marking one of the largest gains in the S&P 500.

Despite the initial sell-off, analysts noted that past military conflicts in the Middle East have not typically resulted in sustained market downturns. According to strategists at Morgan Stanley led by Michael Wilson, the S&P 500 has historically climbed an average of 2 percent, 6 percent, and 8 percent in the one, six, and 12 months following “geopolitical risk events,” referencing events like the Korean War and the 1956 Suez crisis.

However, concerns remain about the potential for broader economic impact. The possibility of Iran disrupting the Strait of Hormuz, a vital waterway for global energy supplies, is a key worry. Any interruption could significantly raise crude prices and fuel costs, impacting both consumers and businesses. Economists have warned that higher oil prices could exacerbate existing inflationary pressures and potentially constrain the Federal Reserve’s ability to cut interest rates.

U.S. Defense Secretary Pete Hegseth attempted to reassure markets, stating, “What we have is not Iraq. This is not endless.” However, the long-term implications of the conflict remain unclear.

Airline stocks were among the hardest hit, with American Airlines losing 4.2 percent, United Airlines falling 2.9 percent, and Delta Air Lines sinking 2.2 percent. Norwegian Cruise Line Holdings experienced an even sharper decline, dropping 10.6 percent, as higher fuel costs and travel disruptions weighed on the sector. Housing stocks also struggled as rising Treasury yields threatened to increase mortgage rates, with D.R. Horton losing 3.7 percent and Builder FirstSource sinking 4.7 percent.

In overseas markets, indexes largely declined. Germany’s DAX lost 2.6 percent, France’s CAC 40 fell 2.2 percent, and Hong Kong’s Hang Seng dropped 2.1 percent. Shanghai’s stock market was an exception, rising 0.5 percent. The yield on the 10-year Treasury rose to 4.04 percent from 3.97 percent late Friday, influenced by stronger-than-expected U.S. Manufacturing growth data.