Brent crude oil surged to its highest level since May due to escalating conflicts in the Middle East, raising concerns about global oil supply disruptions. Meanwhile, the U.S. stock market experienced significant losses driven by sharp declines in the shares of influential companies such as Alphabet and Tesla.
The S&P 500 dropped 1.2%, potentially marking its first consecutive weekly loss since March. The Dow Jones Industrial Average fell by 1%, while the Nasdaq composite tumbled 2.2%.
Rising oil prices, which increase operational costs for many businesses and redirect consumer spending toward higher fuel prices, exerted downward pressure on stocks. The price of a barrel of Brent crude oil, the global benchmark, surged by seven percent to close at $100.69 US, reaching its highest level since May.
The spike in oil prices was triggered by attacks on two Saudi oil tankers in the Red Sea, threatening a crucial route for oil transportation from the Middle East to global markets. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, backed by Iran, if the attacks persist.
The recent surge in oil prices poses a risk of reigniting inflation, potentially prompting central banks to raise interest rates, dampening economic growth and impacting stock and investment prices. The yield on the 10-year treasury bond rose to 4.69%, up from 4.67% the previous day and significantly higher than the pre-war level of 3.97%.
Higher oil prices also led to an increase in gasoline prices, with the average cost per liter in Canada rising to $1.802. Companies heavily reliant on fuel, such as American Airlines and Southwest Airlines, saw their stocks plummet despite reporting better-than-expected profits for the latest quarter.
Tesla’s stock plummeted by 14.5% following weaker-than-expected quarterly earnings, while Alphabet’s shares declined by 7.1% despite surpassing profit and revenue estimates. Investors expressed concerns over Alphabet’s increased spending on artificial intelligence projects, leading to uncertainty about the returns on these investments.
The impact of rising oil prices reverberated globally, with European markets experiencing sharp declines, while Asian markets initially showed strength, with South Korea’s Kospi index surging by 4.4%.
The developments in the oil market and geopolitical tensions are expected to continue influencing global financial markets in the coming days.