U.S. stock markets fell sharply and oil prices surged more than 5% on Tuesday after President Donald Trump declared that the ceasefire with Iran is 'over', reigniting fears of supply disruptions in the Middle East. The Dow Jones Industrial Average dropped 1.2%, while the S&P 500 and Nasdaq each lost about 1.4% in afternoon trading.
Oil prices spike on renewed Middle East risk
West Texas Intermediate crude rose 5.3% to $84.70 per barrel, and Brent crude climbed 4.9% to $88.20 per barrel. The spike came after Trump told reporters at the White House that the temporary truce with Iran 'is over as of this moment', without providing further details. The ceasefire, brokered by Qatar last month, had calmed markets after a series of attacks on tankers in the Strait of Hormuz.
'This is a significant escalation that reintroduces a major risk premium into oil markets,' said John Kilduff, partner at Again Capital in New York. 'Traders are pricing in the possibility of supply disruptions that could ripple through the global economy.'
Market sectors react
Energy stocks were the only bright spot, with the S&P 500 energy sector gaining 2.1%. Exxon Mobil rose 1.8%, and Chevron added 2.3%. However, airline and transportation stocks tumbled as higher fuel costs threaten margins. The Dow Jones Transportation Average fell 2.7%.
Defense stocks also rallied, with Lockheed Martin up 1.5% and Northrop Grumman gaining 1.9%. 'Geopolitical unrest typically boosts defense names,' noted Lindsey Bell, chief strategist at Ally Invest.
Broader market impact
The yield on the 10-year Treasury note slipped to 3.42% from 3.48% as investors sought safe-haven assets. Gold rose 0.8% to $1,945 per ounce. The U.S. dollar index gained 0.3% against a basket of currencies.
'Markets are in risk-off mode,' said Tom Essaye, founder of Sevens Report Research. 'The uncertainty around Iran is a wild card that could persist for weeks.'
Analyst views
According to analysts at Goldman Sachs, the breakdown of the ceasefire could add $5 to $10 per barrel to oil prices in the near term if tensions escalate further. 'The risk of a full-blown conflict remains low, but the market cannot ignore the possibility,' the bank said in a note.
Meanwhile, the White House has not provided details on next steps. National Security Advisor Mike Waltz is scheduled to brief reporters later Tuesday.
