Oil prices jumped back above $100 a barrel and global stocks fell after weekend talks between the US and Iran ended without an agreement and Donald Trump imposed a blockade of the strait of Hormuz.
The US president announced the blockade on Sunday, targeting Iranian vessels and ships that have paid a toll to Iran for passage through the strait, in an attempt to choke off the flow of Iranian oil.
US Central Command said it would start at 10am ET (5.30pm in Iran and 3pm in the UK), blocking all Iranian Gulf ports and coastal areas, in effect seizing control of maritime traffic in the strait of Hormuz.
The news drove oil and gas prices sharply higher again, after the two-week ceasefire between the US and Iran announced on Wednesday prompted a sharp fall in energy prices, and crude ended the week below the psychological $100 a barrel threshold.
Brent crude rose by nearly 7% to $101.74 a barrel on Monday morning, while US crude is up more than 8% to $104.69 a barrel.
Gas prices also increased, with the British wholesale gas contract for May soaring by 11.7% to 122.5p a therm.
Analysts at JPMorgan Chase said last week they expected oil prices to stay high in the second quarter, above $100 a barrel, before easing in the second half of the year.
Most Asian stock markets fell on Monday, with Japan’s Nikkei down 0.7% and Hong Kong’s Hang Seng index losing 1%, while Chinese stocks rose slightly. Sentiment was helped by Beijing’s announcement of a 10-initiative strategy aimed at deepening ties with Taiwan.
European stocks also fell, led by airlines including Lufthansa, Wizz Air, easyJet and British Airways parent IAG. The FTSE 100 index in London lost 0.4%, dropping 45 points to 10,555. Germany’s Dax fell 1%, Italy’s FTSE MiB slipped 0.7% and Spain’s Ibex was down 1.1%. With oil and gas prices rising sharply higher, energy companies such as BP and Shell are rallying.
With large numbers of oil tankers remaining stuck in the Gulf, the ceasefire had raised hopes that ships could get moving again. But Trump announced a blockade of the strait on his Truth Social platform after peace talks between Washington and Tehran held in the Pakistani capital ended after 21 hours without a deal.
Priyanka Sachdeva, senior market analyst at the broker Phillip Nova, said: “In today’s environment, every barrel of risk added to oil markets carries an inflation price tag for the global economy.”
She added: “The market reaction underscores a simple but powerful reality: Hormuz risk is not theoretical; it is structural, and it is real.”
Interest rate expectations have shifted again; investors now see an 84% chance of two rate increases from the Bank of England this year to tackle rising inflation, up from 60% on Friday. Before the Iran war, the central bank was expected to cut rates.
The price of gold fell 0.4% to $4,730.75 an ounce as the blockade fuelled inflation concerns, prompting traders to scale back expectations for Federal Reserve rate cuts this year.
Michael Brown, senior research strategist at brokerage Pepperstone, said: “While crude has advanced, and stocks slipped a touch, the overall market reaction to the weekend news of a US Navy blockade of the strait of Hormuz has been relatively contained, as participants view the move largely as a negotiating gambit from President Trump.”
More than 32 million people worldwide could be plunged into poverty by the economic fallout from the Iran war, with developing countries expected to be hit hardest, according to a report released by the United Nations Development Programme on Monday.
