Oil prices surged past $100 a barrel on Thursday as Iran-backed Houthi rebels targeted Red Sea shipping and threats by US President Donald Trump to strike them in return sent equity markets slumping.
The international benchmark Brent North Sea oil contract soared more than six percent over the symbolic $100 level, as the attacks potentially opened a new front in the Middle East war and Trump threatened the Houthis with “major military punishment”.
Iran meanwhile vowed to continue striking the Gulf region so long as it remains under attack from US strikes.
Saudi Arabia had been using the Red Sea to export millions of barrels of oil that normally flowed through the Strait of Hormuz, so the closure of that shipping channel would remove more oil from the market.
“Investors are in a wary mood… as fresh jitters of worry about the ongoing energy crunch hit sentiment,” said Susannah Streeter, chief investment strategist at Wealth Club.
“With both the Strait of Hormuz and the Red Sea now under increasing pressure, markets are bracing for the possibility that the conflict could disrupt key energy routes (and) keep oil prices elevated,” she added.
The prospect of higher oil prices also raises the prospect of higher inflation and interest-rate hikes, adding to weak sentiment, analysts said.
Sovereign bonds yields also rose, putting pressure on government spending around the world.
European Central Bank head Christine Lagarde said some of its policymakers had considered raising rates at a meeting on Thursday, although all eventually voted to hold rates.
Wall Street’s main stock indices were all lower in late morning trading, with the tech-heavy Nasdaq Composite down more than two percent.
“That isn’t surprising given what is going on with Alphabet, Tesla and the mega-cap stocks, oil prices and bond yields,” said Briefing.com analyst Patrick O’Hare.
All of the so-called Magnificent Seven tech stocks were lower.
Shares in Alphabet fell more than seven percent, with some investors taking fright that it raised its AI capital expenditure estimate for the full year to as much as $205 billion, far more than expected.
Investors were spooked by Alphabet switching to negative cash flow — spending more than it received in revenue during the quarter, analysts said.
“The ability of Alphabet and its peers to generate mountains of cash was a key plank of the market rally, and now that plank is at risk of disappearing,” said Chris Beauchamp, chief market analyst at online trading and investing platform IG.
“It feels like a watershed moment in the AI spending boom,” he added, warning that during the summer when trading volume is lower swings in share prices “could get very ugly, very quickly”.
Investors’ appetite for AI has been tested in recent months on concerns about elevated valuations and as they question when the huge sums pumped into the sector will see returns.
Next week’s results from Microsoft, Meta and Amazon will be pored over for their capital spending plans.
Most Asian stock markets were buoyed by a much-needed bounce for regional tech firms.
European markets finished lower.
The dollar firmed against its main rivals, buoyed by the high oil price, as buyers with other currencies will need to buy more dollars to purchase their crude.
Eyes are on Tokyo after the yen hit a fresh four-decade low against the dollar amid concerns over the gap between the Bank of Japan’s low interest rates and those in the United States and other big economies.
Rising oil prices and concerns over Japan’s economy have added to pressure on the currency.
Key figures around 1530 GMT
Brent North Sea Crude: UP 7.2 percent at $100.83 per barrel
West Texas Intermediate: UP 6.3 percent at $92.31 a barrel
New York – Dow: DOWN 1.2 percent at 51,590.90 points
New York – S&P 500: DOWN 1.6 percent at 7,382.73
New York – Nasdaq Composite: DOWN 2.8 percent at 24,981.43
London – FTSE 100: DOWN 0.7 percent at 10,639.17 (close)
Paris – CAC 40: DOWN 1.6 percent at 8,299.09 (close)
Frankfurt – DAX: DOWN 1.6 percent at 24,763.12 (close)
Tokyo – Nikkei 225: UP 0.5 percent at 66,422.60 (close)
Hong Kong – Hang Seng Index: UP 1.3 percent at 25,210.81 (close)
Shanghai – Composite: UP 0.3 percent at 3,876.78 (close)
Euro/dollar: DOWN at $1.1373 from $1.1411 on Wednesday
Pound/dollar: DOWN at $1.3305 from $1.3372
Euro/pound: UP at 85.47 pence from 85.33 pence
Dollar/yen: UP at 163.87 yen from 163.15
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