Oil Price Surge Linked to Middle East Conflict and Stock Market Impact

Oil prices have surged significantly as conflicts in the Middle East threaten to disrupt global crude oil supplies. On Thursday, Wall Street showed a downturn with substantial declines in leading stocks like Alphabet and Tesla. The S&P 500 fell by 0.8%, marking a potential consecutive weekly loss, the first since March. Around 9:35 a.m. Eastern time, the Dow Jones Industrial Average had decreased by 363 points, or 0.7%, and the Nasdaq Composite saw a 1.6% decrease.

The upward pressure on oil prices has impacted stocks, as increased fuel costs elevate expenses for businesses, diverting consumer spending towards higher fuel prices. Brent crude oil, the international benchmark, jumped by 6.1% to reach $99.78 per barrel. Earlier, Brent briefly exceeded $100, marking its peak in two months following attacks on Saudi oil tankers in the Red Sea, threatening crucial transportation routes for oil exports from the Middle East, alongside the Strait of Hormuz.

Following these events, President Donald Trump warned of severe military repercussions against Houthi rebels in Yemen, backed by Iran, should they continue targeting ships. Not long ago, Brent crude prices had dipped below $72, akin to pre-conflict levels, buoyed by hopes for a reopening of the Strait of Hormuz to oil shipments.

The spike in oil prices raises concerns over inflation acceleration, possibly prompting the Federal Reserve and other central banks to increase interest rates, potentially slowing economies and affecting stock prices negatively. Yields on 10-year Treasury notes increased to 4.70% from 4.67% on Wednesday, up from a pre-Iran conflict rate of 3.97%. This significant rise also brought long-term U.S. mortgage rates to near peak levels of the year.

Companies with heavy fuel expenditures experienced stock downturns amid concerns of rising operational costs. American Airlines faced a 9.1% decline despite reporting larger-than-expected spring profits, typically a positive indicator for stock performance. It raised fares to mitigate higher fuel expenses. Southwest Airlines regressed by 4.2% despite reporting favorable profit and revenue figures for the latest quarter, extracting increased profit from each dollar of revenue despite heightened fuel costs.

Tesla’s performance weighed heavily on the U.S. stock market, falling by 9.8% following a quarterly profit report falling short of analyst predictions. As one of the largest stocks by market value on the S&P 500, Tesla’s share performance significantly affects the index. Alphabet shares declined by 5.7%, despite exceeding profit and revenue expectations. Investor focus appeared concentrated on Alphabet’s substantial projected investments in artificial intelligence. CEO Sundar Pichai noted AI-driven cloud revenue growth accelerated to 82% last quarter, yet uncertainties remain regarding the future impact on productivity and profitability.

Internationally, European indices experienced notable losses as oil prices escalated. France’s CAC 40 fell by 1.7%, representing a significant decline. Earlier, Asian markets demonstrated strength, with South Korea’s Kospi rising by 4.4%.

AP Business Writers Matt Ott and Elaine Kurtenbach contributed to this report.