Oil Prices Surge 5%, Stocks Drop as Iran Disrupts Tanker Traffic

Oil prices surged as much as 5% on Thursday morning, causing a downturn in stock markets and a rise in Treasury yields due to new Iranian attacks disrupting tanker traffic in the Strait of Hormuz. Brent crude futures climbed 4.3% to $104.54 a barrel, potentially reaching their highest closing price in weeks, while West Texas Intermediate crude rose 4.3% to $92.09.

The increase followed reports that President Trump is considering resuming a large-scale operation in Iran, amplifying trader concerns. This news pushed the US 10-year Treasury yield up to 5.294%, reversing previous day's declines. The 10-year yield has been on an upward trend for most of the past 12 trading days, nearing a 24-year high, amid a global bond sell-off driven by fears of persistent inflation and further interest rate hikes.

Major stock indices also reacted negatively, with the Dow Jones Industrial Average falling 95 points (0.2%), the S&P 500 declining 0.4%, and the Nasdaq dropping 0.6%.

The ongoing conflict with Iran has kept national average gasoline prices above $4 a gallon. Diesel prices, critical for home heating and transportation, have surpassed $6 a gallon, potentially affecting the costs of food and apparel.

Previously, the US had worked to partially restore traffic through the Persian Gulf, with sailors reportedly offered up to $25,000 per trip to navigate the hazardous route. However, Iran's response has been to intensify attacks on commercial vessels.

Adding to supply constraints, producers off the US Gulf Coast were compelled to reduce operations due to a significant hurricane, which could contribute to sustained elevated prices.

Reports indicate that President Trump is evaluating whether to resume strikes on Iran before the upcoming midterm elections. This potential escalation, if enacted, would break a three-month period of uneasy stalemate between Washington and Tehran, potentially reigniting inflation concerns among voters already worried about economic affordability.

On Tuesday, only seven commodity vessels transited the Strait of Hormuz, the lowest number since July 23, according to data analytics firm Kpler. Attacks on tankers have reached their highest point since the conflict began. Kpler analysts noted that crude oil crossing the strait fell 27% from its wartime high the previous week, to an estimated 10.1 million barrels a day, aligning with September averages but still significantly below pre-war levels.

Earlier in the week, from September 28 to October 4, the strait saw an average of fewer than 23 ships daily, a stark contrast to the hundreds that transited the waterway each day before the conflict began.