Just over a week into the U.S.-Israeli war on Iran, Wall Street has started to price in a prolonged conflict, as hopes for a swift endgame have been crushed.
With no signs of de-escalation, both sides are instead upping the ante, expanding targets to critical infrastructure and risking greater retaliation in the process.
U.S. oil futures shot up 24.6% to $113.30 a barrel, and Brent crude gained 23.4% to reach $114.38. Over the weekend, President Donald Trump downplayed the possibility of releasing oil from the Strategic Petroleum Reserve to ease price pressure.
“Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace,” he posted on Truth Social on Sunday.
Prices at the gas pump are likely to top $4 a gallon now that oil has surged past $100 a barrel for the first time since 2022. Patrick De Haan, head of petroleum analysis at GasBuddy, said on X that the odds of reaching that threshold in the next month are now 80%.
Futures tied to the Dow Jones industrial average crashed 1,011 points, or 2.13%. S&P 500 futures were down 2.01%, and Nasdaq futures lost 2.31%.
Gold dipped 1.3% to $5,029 per ounce, and silver fell 2.1% to $82.50. The yield on the 10-year Treasury spiked 6.6 basis points to 4.198% on expectations of hotter inflation. The U.S. dollar was up 0.83% against the euro, and up 0.60% against the yen.
The war’s rapid spiral into greater levels of peril stoked fears that multiple worst-case scenarios could be realized. The Strait of Hormuz remains effectively closed, fulfilling a “nightmare” that has been feared for decades.
With top oil producers in the Persian Gulf unable to export their crude, they have started to pump less as storage capacity has already reached its limits. Iraq’s output has now collapsed by 60%.
Bahrain and Iran also said their desalination plants were attacked, threatening water in the Mideast, where some countries get 90% of their supplies by processing seawater.
The region is so reliant on desalination that prior intelligence assessments warned damage to the infrastructure could force evacuations from parched cities.
Meanwhile, the U.S. and Israel attacked an oil depot in Tehran, obliterating supplies used by civilians and the military. Smoke covered the city while acid rain and oily rain fell. Iran’s missiles and drones have also targeted oil and civilian infrastructure around the Gulf.
The Pentagon confirmed the death of a seventh U.S. service member in the war, and sources told Bloomberg that Trump is contemplating a Special Forces mission where troops would enter Iran to seize near-bomb-grade uranium that could be used in a nuclear weapon.
More countries could also get involved in the war. Gulf states have reportedly warned Tehran that continued attacks on them could result in direct action against Iran. Turkey may send fighters to northern Cyprus, and Russia has been feeding intelligence to Iran on U.S. military assets in the region.
Iran has remained defiant and announced Mojtaba Khamenei, the son of Ayatollah Ali Khamenei, will become the next supreme leader, after his father was killed last weekend. Days earlier, Trump rejected him as a possibility.
“Khamenei’s son is unacceptable to me,” he told Axios. “We want someone that will bring harmony and peace to Iran.”
Iran’s choice for its new supreme leader is seen as a sign that the regime’s hard-liners are in control and poised to resist any compromise with the U.S.
When asked in the Oval Office last week for the worst-case scenario in Iran, Trump replied, “I guess the worst case would be we do this, and then somebody takes over who’s as bad as the previous person, right? That could happen.”