On Thursday, April 2nd, the U.S. President Donald Trump hinted at the continuation of the war with Iran. As a result, oil prices surged by 10% and the U.S. stock market indices saw a significant drop.
As of 9:16 AM Eastern Time, the price of U.S. West Texas Intermediate crude oil futures for May delivery rose by 13% to $113.08 per barrel. The price of international benchmark Brent crude oil futures for June delivery also increased by 8% to $109.29 per barrel.
In early trading on Thursday, the Dow Jones Industrial Average dropped by 608 points, a decline of 1.3%. The S&P 500 index fell by 1.3% and the Nasdaq Composite index dropped by 1.7%.
During his speech on Wednesday evening, Trump attributed the rise in oil prices to “the Iranian regime launching crazy terrorist attacks on commercial oil tankers and neighboring countries unrelated to the conflict.”
In his national address on Wednesday, the President stated that the U.S. would “vigorously” strike Iran in the next two to three weeks. He added that the war would not last long, and negotiations with Tehran authorities were still ongoing, leaving room for a diplomatic resolution.
“We will get the job done, and we will get it done quickly,” the President said.
George Efstathopoulos, a portfolio manager at Fidelity International, in an interview with CNBC’s “Squawk Box Asia” program, expressed that the market was prepared for either the President indicating his plans to withdraw from the war, or escalating the situation leading to prolonged uncertainty. “Clearly, we seem to be heading towards the latter at this point,” he remarked.
Since the U.S. and Israel went to war with Iran on February 28th, traffic in the Strait of Hormuz has come to a standstill. The strait had been responsible for transporting one-fifth of the globe’s oil and natural gas supply. The closure of the strait resulted in a surge in energy prices, triggering one of the most severe energy crises in the world.
Giles Alston, a political risk analyst at Oxford Analytica, stated that the resumption of oil tanker shipping in the Strait of Hormuz is unlikely to happen swiftly. He mentioned on CNBC on Thursday, “It is becoming increasingly clear that Washington is basically staying out of the way of how oil is transported through the strait. It’s now entirely up to those who transport oil through the strait to solve the problem themselves.”
Kevin Mahn, Chief Investment Officer at Hennion & Walsh, said in an interview on CNBC’s “Squawk Box” program, “The longer oil prices remain elevated, the less consumer spending there will be, and the slower the economic growth rate will be.” He also noted that he expected the Fed to refrain from adjusting interest rates in the near term, stating that “we must wait for the conflict to be resolved to truly see relief in oil prices and inflation.”
Earlier on Wednesday, Trump posted on the Truth Social platform that the new Iranian President had requested a ceasefire, but it would only be considered under the condition of unimpeded traffic in the Strait of Hormuz. This briefly ignited hopes of restoring oil tanker shipping through the strait, leading to a decrease in oil prices.
However, the Islamic Republic of Iran denied Trump’s claim, emphasizing that the transit passage through the strait is still “fully controlled by the Iranian Islamic Revolutionary Guard Navy.”