Energy markets convulsed on Monday as crude prices shot upward and European equities retreated, sparked by the US seizure of an Iranian cargo vessel attempting to breach the American blockade near the strait of Hormuz.
Brent crude, the global oil benchmark, climbed as much as 5% to $95.50 per barrel. The move came after Donald Trump announced Sunday that the US had taken full custody of the Iranian ship, declaring on social media: "We have full custody of their ship, and are seeing what's on board!"
Stock markets across Europe felt the pressure immediately. London's FTSE 100 slipped 0.5%, while France's Cac 40 and Germany's Dax each dropped about 1%. The broader Stoxx Europe 600 index fell 0.9%.
The seizure threatens to derail fledgling peace negotiations. Tehran signaled it will not show up for a second round of talks the US had hoped to launch before the current ceasefire expires this week. Over the weekend, reports also surfaced that Iran's Revolutionary Guards had fired on tankers in the region.
The strait of Hormuz carries roughly one-fifth of the world's oil and gas supply. Any prolonged closure would send shockwaves through global energy markets and far beyond.
Airlines took a sharp hit on sector-wide concerns about fuel costs and potential shortages. British Airways owner IAG dropped 3.4%, while budget carrier Wizz Air fell 4.9%. Ryanair, Europe's largest airline by passenger count, slid 3.3%. Engine maker Rolls-Royce also tumbled about 3%.
Energy stocks bucked the trend. BP and Shell both gained more than 2% on the FTSE 100 as traders positioned for sustained high crude prices.
The market whiplash was sharp. On Friday, oil had plunged 9% after Iran announced it would keep the strait open during the two-week ceasefire and Trump claimed Iran had agreed never to close the channel again. That optimism evaporated over the weekend.
Susannah Streeter, chief investment strategist at Wealth Club, said the collapse of diplomatic hopes had triggered "fresh jitters" across markets. "Deep reserves of patience are needed, but with some industries such as airlines staring at jet fuel shortages, these are tense times," she said.
UK wholesale gas prices surged 5.8% to 102 pence per therm on Monday, reflecting mounting energy security concerns. The Energy and Climate Intelligence Unit estimated that if oil holds at $100 per barrel, British drivers traveling 8,000 miles annually could face an extra £140 in annual fuel costs.
Desperation at the pump is already visible. The British Oil Security Syndicate reported a 19% jump in drive-offs and unpaid forecourt bills since the Iran conflict began.
The blockade threatens food security as well. Fertilizer, a key commodity normally shipped through the strait, faces potential shortage. Chicago wheat futures rose 1.7% to $6.09 per bushel on Monday, following a 5% spike the previous week.
Author James Rodriguez: "This tit-for-tat escalation is burning through the goodwill both sides needed to keep talking, and the longer negotiations stall, the more pain consumers worldwide will feel at the pump and supermarket."
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