London (AFP) – Stock markets slumped as energy prices soared on Monday, driven by supply disruptions from the Middle East war that increased volatility and heightened inflation fears. Oil prices rocketed above $100 a barrel for the first time since Russia’s invasion of Ukraine in 2022, as Iran carried out retaliatory strikes against crude-producing Gulf nations. US President Donald Trump stated over the weekend that the price spike was a “small price to pay” to eliminate Iran’s nuclear threat, as the war showed no signs of easing.
Iran marked the appointment of Ayatollah Mojtaba Khamenei to replace his father as its supreme leader with a new barrage of missiles against Israel and the Gulf states at the start of the week. After spiking around 30 percent during Asian trading, international benchmark Brent and the main US oil contract WTI both pared gains to stand up around 10 percent at around $100 per barrel as trading got underway in New York. Even following Russia’s 2022 invasion of Ukraine, when oil prices touched $130.50 per barrel, the jump in prices wasn’t as drastic.
“Stocks are a sea of red today,” said Kathleen Brooks, research director at trading group XTB. Stocks in Europe clawed back some of their earlier losses as oil prices gave up much of their gains, coinciding with the Group of Seven industrialized nations preparing to discuss tapping emergency reserves to ease the supply strain. Wall Street stocks fell by less than one percent as trading commenced, which was less than the losses seen during futures trading.
“The market has been somewhat calmed by the prospect of a coordinated release of strategic oil reserves by the G7 allies. However, there are still upside risks to the oil price, and anything the G7 does today may only have a temporary impact,” she added. The discussions come as maritime traffic in the Strait of Hormuz—through which a fifth of global crude passes—has all but halted since the war began on February 28.
Analyst Lee Hardman at Mitsubishi UFJ financial group mentioned that the size of the release of oil from strategic reserves would cover two to three weeks of normal supply through the Strait of Hormuz. “It would be a temporary fix to help prevent an even more disruptive surge in the price of oil in the coming weeks,” he added. Markets are worried that a spike in energy prices would trigger inflation and slow growth.
“The surge higher for the price of oil is significantly increasing stagflation risks for the global economy and could trigger a deeper sell-off in global equity markets,” Hardman remarked. Stagflation refers to a period of high inflation and economic stagnation. Central banks are forced to raise interest rates to combat inflation, thereby hindering growth. The prospect of interest rates being kept elevated, or even raised to tackle inflation, pushed government bond yields higher on Monday.
In Asia, Seoul—one of the region’s best performers this year thanks to a tech rally—closed down six percent, while Tokyo shed more than five percent and Taipei fell more than four percent. Hong Kong and Shanghai also closed sharply lower.
Key figures at around 1330 GMT:
– Brent North Sea Crude: UP 10.3 percent at $102.23 per barrel
– West Texas Intermediate: UP 9.6 percent at $99.61 per barrel
– New York – Dow: DOWN 0.9 percent at 47,086.58 points
– New York – S&P 500: DOWN 0.8 percent at 6,686.21
– New York – Nasdaq Composite: DOWN 0.7 percent at 22,234.64
– London – FTSE 100: DOWN 0.9 percent at 10,196.74
– Paris – CAC 40: DOWN 1.7 percent at 7,854.78
– Frankfurt – DAX: DOWN 1.0 percent at 23,349.68
– Seoul – Kospi: DOWN 6.0 percent at 5,251.87 (close)
– Tokyo – Nikkei 225: DOWN 5.2 percent at 52,728.72 (close)
– Hong Kong – Hang Seng Index: DOWN 1.4 percent at 25,408.46 (close)
– Shanghai – Composite: DOWN 0.7 percent at 4,096.60 (close)
Currency Rates:
– Euro/dollar: DOWN at $1.1571 from $1.1604 on Friday
– Pound/dollar: DOWN at $1.3378 from $1.3385
– Dollar/yen: UP at 158.29 yen from 157.88 yen
– Euro/pound: DOWN at 86.58 pence from 86.67 pence
© 2024 AFP
