Oil prices climbed significantly on Thursday, with Brent crude futures surpassing the $100 per barrel mark for the first time since May 26, reaching $100.70 per barrel, an increase of about 7%. U.S. West Texas Intermediate (WTI) crude also rose by approximately 6% to $92.25 per barrel. This surge, exceeding 30% this month, is largely attributed to the intensifying conflict in the Middle East, particularly reports of attacks on tankers in the Red Sea and President Trump's threats of a "massive attack" against Iran.
The escalation of tensions includes Iran's Houthi allies in Yemen claiming to have targeted two Saudi oil tankers. President Trump stated the U.S. would hold Iran accountable for future Houthi attacks on ships, threatening severe military action against Tehran and the Yemeni militants. Analysts like Croft from RBC Capital Markets suggest that these pressures could push Brent crude prices above the 2022 high of $128 per barrel, and potentially even surpass the 2008 peak of $146 per barrel in a worst-case scenario of a full-scale regional war.
Simultaneously, U.S. stock markets experienced declines. The Nasdaq Composite fell 2.70% or 693.08 points to 24,997.83, the S&P 500 trimmed 1.51% or 113.34 points to 7,385.62, and the Dow Jones Industrial Average lost 1.18% or 616.50 points to 51,602.08. This downturn was driven by concerns over substantial AI spending from Big Tech companies like Alphabet and Tesla's earnings, which failed to convince investors of adequate returns on investment, alongside the rising oil prices and geopolitical risks. Shares of Alphabet dropped 6.4% and Tesla slumped 12.2%.
The rise in oil prices also fueled inflation concerns, pushing interest-rate-sensitive two-year Treasury yields to a 17-month high. Traders are now pricing in a roughly 38% chance of a 25-basis-point Federal Reserve rate hike as early as next week, up from 12% a week ago. This shift reflects expectations that the Federal Reserve may continue to prioritize inflation control. Moreover, the closure of key shipping routes in the Middle East, such as the Strait of Hormuz and Bab el-Mandeb, could severely disrupt global oil and gas supplies.
Beyond the Middle East, the ongoing Russia-Ukraine war is also contributing to pressure on global oil markets, particularly affecting Kazakhstan's crude exports through the Caspian Pipeline Corporation, which has ceased crude loading at its Black Sea terminal. This disruption impacts approximately 80% of Kazakhstan's crude exports, potentially leading to production shut-ins given limited alternative routes. Analysts warn that higher oil prices due to escalating Middle East developments and the geopolitical landscape pose a significant near-term macro risk, potentially reaccelerating inflation and delaying interest rate relief.
