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 said on Sunday the blockade would target 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.
Trump said on Monday afternoon that ships coming near the blockade would be “eliminated”.
Oil and gas prices rose sharply 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 psychologically important $100 a barrel threshold.
Brent crude rose 6.9% to $101.74 a barrel on Monday, while US crude was up 7.2% at $103.55.
Gas prices also increased, with the British wholesale gas contract for May jumping by almost 12% earlier and later up 7.25% at 117.57p per therm.
The oil cartel Opec lowered its forecast for world demand in the second quarter by 500,000 barrels a day, citing the war in the Middle East. It now expects global demand to average 105.07m barrels a day between April and June, down from the 105.57m barrels forecast in last month’s report.
Trump posted on his Truth Social platform: “Iran’s Navy is laying at the bottom of the sea, completely obliterated – 158 ships. What we have not hit are their small number of, what they call, “fast attack ships,” because we did not consider them much of a threat.
“Warning: If any of these ships come anywhere close to our BLOCKADE, they will be immediately ELIMINATED, using the same system of kill that we use against the drug dealers on boats at Sea. It is quick and brutal.”
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 38 points to 10,561. Germany’s Dax fell 0.9%, while France’s Cac 40 lost 0.75%, Italy’s FTSE MiB slipped 0.5% and Spain’s Ibex fell 1.3%. With oil and gas prices pushing sharply higher, BP and Shell’s shares both rose 1.2%.
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.
Russ Mould, investment director at the broker AJ Bell, said: “Investors are trying to gauge whether a fragile ceasefire will hold, and they are waiting to see the next moves from Tehran and Washington. Against this backdrop, oil above $100 per barrel is no surprise and the longer it persists at this level, the greater the scars for the global economy.
“The stagflation word is being widely aired once again as geopolitical turmoil threatens to stymie international growth and stoke inflationary pressures.”
Priyanka Sachdeva, a 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.”
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 0.8% to $4,712.04 an ounce as the blockade fuelled inflation concerns, prompting traders to scale back expectations for Federal Reserve rate cuts this year.
Michael Brown, a senior research strategist at the broker 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.
