NEW YORK — Oil prices shot up again Thursday because of the war with Iran, tightening their grip on the global economy and sending stock markets worldwide sharply lower.
Brent crude, the international standard, briefly rose above $119 per barrel in the morning before pulling back to $112.70, which is still a 5% rise from the prior day. A barrel of benchmark U.S. crude added 1.4% to $96.78 after Iran intensified its attacks on oil and gas facilities around the Persian Gulf in response to an Israeli attack on an important Iranian natural gas field.
The attacks added to fears that fighting may knock out production of oil and gas in the gulf for a long time, which would mean high prices could last a while and cause inflation to rip higher around the world.
Stock indexes dropped 3.4% in Japan, 2.7% in South Korea, 2.6% in Germany and 2.6% in the United Kingdom. On Wall Street, where trading began after Brent crude’s price pared some of its big gain and where companies are less reliant on oil from the Gulf, the losses were a bit more modest.
The S&P 500 fell 0.9% to deepen its drop for the week so far, which is on track to be its fourth straight losing week. The Dow Jones Industrial Average was down 331 points, or 0.7%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 1.3% lower.
President Donald Trump and countries around the world have made moves to stem the spike in oil prices, but they’re mostly short-term fixes when markets want to see less risk for Gulf oil fields and a clearance of the Strait of Hormuz off Iran’s coast, where a fifth of the world’s oil typically sails.
Worries are so high about oil prices that traders are now even betting on a slim chance that the Federal Reserve may have to hike interest rates this year. It’s a dramatic turnaround from just a month ago, when traders were betting heavily that the Fed would cut rates multiple times this year.
Cuts to rates would give the economy and prices for investments a boost, and they’re something Trump has angrily been calling for, but they would risk worsening inflation. The Fed on Wednesday decided to hold off on cutting interest rates at its latest meeting, and traders found comments from Chair Jerome Powell discouraging about the possibility for cuts in 2026.
Now, traders are betting on a 10% chance the Fed could hike its main interest rate by the end of the year and a nearly 84% chance that it will at least hold steady, according to data from CME Group. Just a month ago, those same traders were betting on a 74% probability of two or more cuts.
That drove Treasury yields higher, and the two-year Treasury yield touched its highest level since the summer. It rose to 3.85% from 3.76% late Wednesday.
The more widely followed 10-year Treasury yield rose to 4.28% from 4.26% late Wednesday and just 3.97% before the war with Iran started. Earlier in the day, the Bank of Japan, the European Central Bank and the Bank of England held their own interest rates steady.
Besides the threat of higher inflation, a couple solid reports on the U.S. economy also helped to lift yields. One said fewer U.S. workers applied for unemployment benefits last week, when economists were expecting a slight rise. Another said growth for manufacturing in the mid-Atlantic area unexpectedly accelerated.
Besides sending rates for mortgages and other kinds of loans upward, higher Treasury yields also grind down on prices for all kinds of investments, from stocks to crypto to gold.
Gold tumbled 6.9% to $4,557.40 per ounce. Silver fell even more, dropping 12.6%.
On Wall Street, Micron Technology fell 7.5% and helped lead the market lower even though it reported a blowout quarter of much higher profit and revenue than analysts expected.