BENCHMARK oil prices extended gains yesterday, as Wall Street indexes and European shares advanced in choppy trade and investors focused on a Gulf conflict that they fear will drive inflation and raise the risk of recession across the globe.
Federal Reserve Chair Jerome Powell has said the central bank was committed to getting inflation back to 2 per cent and that its policy meant it was well-placed to see how the situation in the Middle East plays out.
On Wall Street, the Dow Jones Industrial Average rose 0.53pc to 45,407.33 as the S&P 500 added 0.20pc to 6,381.69. The Nasdaq Composite lost 0.06pc to 20,936.62.
The pan-European STOXX 600 index rose 0.58pc, while Europe’s broad FTSEurofirst 300 index advanced 0.56pc.
“Oil is the lightning rod right now,” said Eren Osman, managing director of wealth management at Arbuthnot Latham, adding that a reopening of the Strait of Hormuz was the key to calming world markets.
“The biggest challenge for us as investors today is that you’ve got one of the widest ranges of potential outcomes,” he said, adding he did not expect a prolonged conflict as he believed Trump had a “pain threshold” for market losses.
Madison Cartwright, senior geo-economics analyst at Commonwealth Bank of Australia, said Iran’s control of the Strait of Hormuz, conduit for about a fifth of the world’s oil and liquefied natural gas, nonetheless gave it little incentive to concede, and that the bank expected the war to run until at least June.
Prices for food, pharmaceuticals and petrochemical products are all set to rise. Aluminium prices surged to four-year highs after Iranian air strikes on two major Middle Eastern producers over the weekend.
That is particularly bad news for Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower by 1.96pc and Japan’s Nikkei fell 2.79pc.
MSCI’s gauge of stocks across the globe fell 2.18 points, or 0.23pc, to 964.17.
“A scenario in which the Strait remains closed for an additional month would be consistent with oil prices rising towards $150 a barrel and constraints on industrial consumers of energy supply,” said Bruce Kasman, global head of economics at JPMorgan.
Data on US retail sales, manufacturing and payrolls this week will provide an update on how the economy is faring.
The energy shock, combined with pressure on fiscal budgets from higher borrowing costs and the need for more defence spending, has hit sovereign bond markets.
The yield on benchmark US 10-year notes fell 10.2 basis points to 4.338pc, from 4.44pc late on Friday. The two-year note yield, which typically moves in step with Fed interest rate expectations, fell 9.4 basis points to 3.822pc, from 3.916pc.
Heightened volatility in markets has tended to benefit the US dollar as the world’s most liquid currency. The US is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.
Global markets are coming to the end of a dizzying first quarter, dominated by geopolitics and now, war.
The Iran war has wiped roughly $7 trillion off global stocks since it erupted. Suddenly interest rates are heading up, rather than down, and energy-hungry AI does not look such a slam dunk anymore.
Even before the Middle East kicked off, things were lively. There were those Trump interventions in Venezuela and Greenland and worrying spluttering noises in the high-flying private credit market. This month’s 16pc plunge in gold which had been almost unstoppable since the start of 2025 also underscored that there are increasingly few places to shelter from trouble these days.
March has been a month of milestones for the oil market - the biggest energy shock in history, the most volatility since the pandemic and this past week, one of the biggest price flip-flops on record.
The US jobs report for March will offer a crucial view into the economy’s health as investors gauge fallout from the energy price surge.
South Korea’s trade data for March, due for release on Wednesday, will provide an early indicator of how the global economy is holding up in the face of the war and the resulting shock to energy prices. Korea’s export-heavy economy is a bellwether for global trade and one of the first to report on April’s data calendar.
Its manufacturing fortunes are of even greater interest than usual, not just because of its dependence on Middle Eastern energy imports, but also because its world-leading DRAM chips are of critical importance to the AI sector - and currently in short supply too. And with levels of volatility in the Kospi still elevated following the turmoil of the past few weeks, investors should be certain to take a close look.
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