Global oil prices experienced a significant surge on Wednesday, with benchmark crude climbing over 7% to surpass $90 a barrel, following an Iranian missile attack that prompted President Donald Trump to vow retaliation.
The sharp increase in oil prices, a key driver of inflation and fuel costs, contributed to a broader market downturn. Major stock indexes fell, with the Dow Jones Industrial Average dropping 710 points, or 1.3%, and the Nasdaq declining 0.8%. The S&P 500 saw a modest increase of 0.6%.
The average price for a gallon of gasoline has reached $4.09, a 37% increase since late February, according to AAA. This rise is largely attributed to oil price volatility.
President Trump stated Wednesday that the U.S. would respond forcefully to an overnight missile attack launched by Iran. "We'll be hitting them [Iran] hard," Trump told Fox News. U.S. Central Command confirmed that an "attempted surprise attack" involving multiple ballistic missiles targeting U.S. forces in the Middle East was intercepted on Tuesday.
This escalation marks a reversal of a brief period of calm that had previously offered investors hope for a negotiated resolution. Oil prices had swung dramatically in recent weeks, briefly falling to their lowest level since before the conflict on news of a preliminary peace agreement. However, the resumption of substantial fighting between the U.S. and Iran has cast doubt on the durability of any such deal.
Historically, increased hostilities have impacted shipping. Shipping traffic in the Strait of Hormuz, a critical maritime route responsible for transporting about one-fifth of global oil supply, declined sharply during previous escalations, pushing worldwide oil prices above $100 a barrel.
While a pause in U.S. attacks over a recent weekend had provided temporary price relief, the renewed fighting has rekindled upward price momentum. The conflict has also been a significant factor in the overall rise in inflation, particularly impacting fuel costs.
Federal Reserve Chair Kevin Warsh, who assumed leadership of the central bank in May, has committed to reducing inflation to the Fed's target of 2%. The current annual inflation rate stands at 3.5%. "Persistently high prices are a burden for the American people," Warsh stated last month. "This committee will deliver price stability."
The Federal Reserve was expected to announce its decision on interest rates on Wednesday afternoon. While a rate hike could help cool prices, it also carries the risk of slowing hiring. Futures markets indicated a roughly 66% chance of interest rates remaining unchanged, according to the CME Group's FedWatch Tool, though a quarter-point rate hike in September remains a possibility at the central bankers' next meeting.