Stocks Plunge as Oil Surges on Iran War Fears

U.S. stocks fell sharply on Thursday as oil prices spiked due to geopolitical tensions in the Middle East, raising concerns about inflation and global economic stability.

The Dow Jones Industrial Average briefly dropped more than 1,100 points before finishing with a loss of 784 points (1.6%). The S&P 500 fell 1.3%, erasing what had been small gains for the year so far. The Nasdaq composite slipped between 0.3% and 1.6%.

Benchmark U.S. crude oil prices surged more than 12% to over $90 per barrel, while Brent crude climbed about 8.5% to reach approximately $92 per barrel — the highest levels since mid-2024.

The average price for a gallon of gasoline rose to nearly $3.26, up from $2.98 just last week. The sharp increase in energy costs contributed to broader market anxiety about inflation and economic growth prospects.

A weak U.S. jobs report showing employers cutting more positions than they created further dampened investor sentiment. According to CNN, the Dow finished the week down by 3%, marking its worst performance since April, while European stocks (Stoxx 600) fell 5.55% and Japan's Nikkei 225 dropped 5.5%. US oil prices surged roughly 36% this week — the biggest weekly increase since WTI futures started trading in 1983.

Investors have gone from complacency to the edge of panic. And we’re about to have a panic moment,' said Bob McNally, president of Rapidan Energy Group, as reported by CNN. Similarly, Brian Jacobsen, chief economic strategist at Annex Wealth Management, stated that 'You can’t sugarcoat this report,' according to AP News.

The International Energy Agency (IEA) announced a record release of 400 million barrels of oil from emergency stockpiles in response to the crisis. This move is expected to push downward on oil prices in the near term, but it will likely require a full resumption of the flow of oil and natural gas from the Persian Gulf area to fully ease the market.

Worries are centered on the Strait of Hormuz, a narrow waterway off Iran's coast where a fifth of the world’s oil sails on a typical day. The war has halted most of that traffic, which means storage tanks for crude in the region are filling up because the oil has nowhere else to go. That in turn is pushing oil producers to say they’re cutting their output.

The United States said it took out more than a dozen minelaying Iranian vessels Tuesday, and the Islamic Republic vowed to block the region's oil exports, saying it would not allow 'even a single liter' to be shipped to its enemies.

All this is happening at a time when inflation was already relatively high in the United States. A report released Wednesday showed that U.S. consumers paid prices for groceries, gasoline and other costs of living that were 2.4% higher in February than a year earlier.

'Looking forward, we expect a spring bulge in inflation due to the spike in energy prices tied to the Iran war, the duration of which will dictate the landing spot for headline inflation by year end,' according to Gary Schlossberg, global strategist at Wells Fargo Investment Institute.