US Stocks Fall as Oil Prices Hit $100 After US-Iran Conflict Turns Violent Overnight

US stocks came under renewed pressure as oil prices surged above $100 per barrel after the US-Iran conflict took another violent turn. The escalation intensified fears that disruption around the Strait of Hormuz could push inflation higher and complicate the US Federal Reserve's next interest-rate decision.

Wall Street had already suffered considerable losses in Tuesday's session. The Dow Jones Industrial Average fell 1.2%, or 628 points, to 52,786.07, while the S&P 500 dropped 0.6% to 7,673.52. The Nasdaq Composite declined 0.3% to 26,421.41.

The pressure continued into Wednesday as crude prices broke through a psychologically important level. Brent crude briefly moved above $100 a barrel for the first time since July, while West Texas Intermediate climbed above $94. Reuters reported that Brent had risen beyond $100 as the conflict entered another dangerous phase, with investors increasingly concerned about energy supplies.

The latest escalation followed a series of military confrontations involving the US and Iran. Reports said Iran launched ballistic missiles towards a US base in Jordan, while naval confrontations also intensified. The conflict has simultaneously reduced shipping activity through the Strait of Hormuz, one of the world's most important energy chokepoints.

The Hormuz Letter stated in an X post that Iran carried out the single largest attack in the waterway, striking 10 vessels in retaliation for overnight US strikes on five Iranian oil tankers. The IRGC even claimed it also inflicted 'significant damage' to two US destroyers.

Further reports emerged that Iran also used medium-range ballistic missiles to target US military infrastructure in Jordan.

The Hormuz issue has become particularly important for investors because the waterway normally handles a substantial share of global oil shipments. An average of only about 10 commodity ships had crossed the strait each day over the previous 10 days, according to an Al Jazeera report, citing data from Kpler.

Supply Risk Feeding Into Inflation Forecasts

Higher crude prices raise transportation, manufacturing, and household energy costs. If the increase persists, investors fear the Federal Reserve could have less room to cut interest rates, or could even be compelled towards a tighter monetary policy.

That concern is already appearing in market pricing. According to the CME FedWatch tool, traders assigned a 60.2% probability to a 25-basis-point rate increase at next week's meeting, up from 44.4% a month ago. This is a dramatic shift in sentiment, given that markets had previously focused heavily on the possibility of lower rates.

Treasury yields have also moved higher. The 10-year US Treasury yield reached around 4.81% on Wednesday as investors reassessed the inflation and interest-rate outlook. Higher yields can put additional pressure on technology and other growth stocks because they increase the discount rate applied to future corporate earnings.

There is, however, an important distinction between Tuesday's stock-market decline and Wednesday's trading.

US index futures were relatively subdued on Wednesday rather than showing another major sell-off. US stock futures were lower ahead of Wednesday's open, although the declines were considerably smaller than Tuesday's losses.

That suggests investors are not yet pricing in an immediate market collapse, but attempting to gauge if the military escalation in the Middle East develops into a prolonged disruption of oil supplies.

Gold has also benefited from the uncertainty, rising towards $4,400 an ounce as investors sought traditional defensive assets.

The next major test could come from US inflation data due later this week. Producer-price and consumer-price figures will help determine whether the oil shock is beginning to feed into broader inflation.

For investors, the key question is whether oil can remain above the $100 level long enough to change the Federal Reserve's policy path, and if the conflict around Hormuz becomes a temporary shock or a much larger threat to the global economy.

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