Geopolitical tensions between the United States and Iran have roiled global energy and equity markets on Monday, as a fresh standoff over access to the Strait of Hormuz — the world’s most critical oil chokepoint — drove crude prices up more than 5% even as most Asian stock benchmarks notched solid gains.
The rapid shift in market conditions follows a volatile Friday, when crude prices plummeted and U.S. stocks hit fresh all-time records on hopes that the Persian Gulf waterway would reopen to commercial oil traffic. Those hopes unraveled over the weekend after Iran reversed its earlier announcement that it would open the strait to all tankers, while the U.S. reaffirmed that its naval blockade of Iranian ports remains fully in effect.
By early Monday trading, U.S. benchmark crude had climbed 5.6% to settle at $87.20 per barrel. International benchmark Brent crude followed suit, rising 5.3% to hit $95.16 a barrel. The sudden jump in energy prices comes despite an earlier 9.4% plunge in U.S. crude and 9.1% drop in Brent on Friday, sparked by Iranian Foreign Minister Abbas Araghchi’s social media post declaring the strait “completely open” for all commercial vessel passage amid a tentative ceasefire in Lebanon.
Even as the renewed closure of the strait casts fresh doubt on the steady flow of millions of barrels of Middle Eastern oil to global markets, most Asian equity indices finished the trading day in positive territory. Japan’s Nikkei 225 gained 1% to close at 59,045.45, while South Korea’s Kospi added 1.1% to reach 6,260.92. Hong Kong’s Hang Seng Index rose 0.8% to 26,373.71, and mainland China’s Shanghai Composite advanced 0.6% to 4,075.08. Taiwan’s Taiex outperformed regional peers with a 1.4% jump, while Australia’s S&P/ASX 200 remained nearly flat at 8,943.90.
Market analysts have voiced growing caution over the recent equity rally, even amid upward momentum. Stephen Innes, managing partner at SPI Asset Management, noted in a Monday commentary that “the problem for markets is not the absence of hope; it is the overpricing of it. The latest move higher in equities has started to feel less like conviction and more like momentum feeding on itself.”
The escalation of tensions over the Strait of Hormuz comes amid a fragile two-week ceasefire between the U.S. and Iran that is set to expire this Wednesday. Over the weekend, President Donald Trump announced that U.S. naval forces had seized an Iranian-flagged cargo ship that attempted to evade the American blockade. Iran’s joint military command condemned the seizure as an act of piracy and vowed that Tehran would launch a retaliatory response in the near future. While Trump indicated that most terms of a peace deal have already been negotiated and an agreement could come quickly, the latest confrontation has thrown new uncertainty into planned talks to end the conflict.
On Friday, U.S. equities rallied to new records even as oil prices dropped, driven by optimism that an open Strait of Hormuz would ease upward pressure on energy costs. Lower oil prices would not only reduce gasoline prices for consumers but also ease broad-based inflation across the economy, potentially paving the way for lower interest rates that would cut costs for credit card borrowers and home mortgage holders. The S&P 500 climbed 1.2% to hit an all-time closing high of 7,126.06, marking its third consecutive week of double-digit gains — its longest such winning streak since late October. The Dow Jones Industrial Average jumped 1.8% to 49,447.43, and the Nasdaq composite gained 1.5% to close at 24,468.48.
Since hitting a market bottom in late March, U.S. stocks have risen more than 12%, fueled in large part by investor hopes that the U.S. and Iran will avoid a full-scale conflict that would cause catastrophic damage to the global economy. A stronger-than-expected start to the current U.S. corporate earnings reporting season has also provided sustained support for equity prices.
In foreign exchange trading early Monday, the U.S. dollar edged slightly higher against the Japanese yen, rising from 158.79 yen to 158.90 yen. The euro also notched a small gain against the greenback, climbing from $1.1742 to $1.1757.