Already this morning, on Thursday afternoon, US stocks fell even further as the price of crude oil increased by 9% as a result of the war with Iran. US crude oil (WTI) hit a high of $81.64 on Thursday, its highest level since summer 2024, and Brent crude reached $85.85.
Higher oil prices tend to be bad for American consumers, and stocks suffered, with the Dow Jones Industrial Average (DJIA) falling 2.25% while the S&P 500 and NASDAQ lost more than 1%.
The oil shock shows little signs of letting up
An Iranian missile attack on an oil tanker in the Strait of Hormuz led to a fire on board, forcing the crew of the US-flagged vessel to abandon it. President Donald Trump just stepped in on Wednesday to offer insurance to ships that have lost previous insurance due to the arrival of Israel and the U.S. bombing of Iran that began Saturday.
The war is now in its sixth day and there are signs that the hit to oil and natural gas supplies will not be ephemeral. Qatar has already closed its LNG terminals this week, and about 150 tankers are stuck in the Persian Gulf. The Strait of Hormuz is a waterway connecting the Persian Gulf, through which 20% of the world’s oil supplies flow, with the Indian Ocean and the rest of the world. Iran announced earlier this week that no ships would be allowed to transit the Strait for the duration of the war.
In another sign that the war is causing supplies to decline, Exxon Mobil shipped its first shipment of gasoline to Australia on Thursday, and China banned crude exports in a sign that officials are concerned about supply constraints. The Chinese government has ordered two major energy companies, Sinopec and PetroChina, to completely halt gasoline and diesel exports.
OPEC says it will boost production by more than 200,000 barrels a day in April, after already increasing output this month by more than 400,000 barrels a day.
President Trump has said he will not resort to releasing shares from the government’s emergency reserve just yet.
Bad conditions for shares
Morgan Stanley only told investors to stay bullish on Wednesday, after the market had recovered from two sessions of massive selling.
“I think there’s a green light for risk taking now,” portfolio manager Phil Camporeale told CNBC.
This is not the situation on Thursday afternoon. The market is digesting the fact that White House officials initially estimated the war would last “weeks” until Trump declared “four to five weeks.” Politico reported that the Pentagon is planning a war that could last until September.
Typically, experts cite $100 a barrel as the price level at which an oil price shock harms the American consumer enough to cause a recession. So far, the price of WTI has increased by about 20% since the war began on February 28.
Semiconductor stocks are much cheaper as investors brace for possible disruptions in the export market. The US government is considering a plan to require all artificial intelligence products Nvidia (NVDA) AND Advanced Micro Devices (AMD) to obtain export licenses. The Trump White House has been critical of exports to China, but the up-to-date policy will extend those controls to all exports.
South Korea’s stock market fell 20% this week due to the war after soaring last year. Politicians say higher oil prices lead to higher electricity prices, which could hurt the country’s semiconductor industry.
