Crude oil prices jumped and stock prices fell after President Trump declared an end to the fragile ceasefire in the Strait of Hormuz. The U.S. military attacked dozens of targets along the Iranian coastline overnight, in retaliation for what appeared to be Iranian attacks on vessels trying to transit the strait.
The hostile action threatens to prolong volatility in global markets just weeks after investors had reacted with relief after Trump and Iran had agreed on a ceasefire.
Both the U.S. and international benchmarks for crude oil jumped about 7% on Wednesday, although they still remain well below their springtime peaks. Meanwhile, the Dow Jones Industrial Average tumbled more than 800 points, or 1.5%, after hitting a record high just two days earlier.
The resumption of attacks renews the prospect of inflationary pressure after a month of falling gasoline prices. The initial price spike was muted, however, suggesting that markets don't expect a return to full-blown war. Retail gasoline prices in the U.S. rose less than a penny per gallon overnight, according to AAA, though they could climb higher in the coming days as higher crude oil costs are passed along.
Global markets have been volatile ever since the U.S. and Israel first attacked Iran in February — and the jump in bond yields seen overnight signals that investors expect renewed uncertainty.
All eyes are on the Federal Reserve
The ongoing tensions with Iran will also continue to add pressure on the Federal Reserve under its new chairman, Kevin Warsh.
A market gauge — the CME FedWatch tracking tool — suggests investors now see a better than 1-in-3 chance that the Fed will raise interest rates this month. That's up from about a 1-in-4 chance on Tuesday, before the ceasefire broke down.
The central bank is closely monitoring higher energy prices, which have already pushed inflation well above its 2% target. The Trump administration is also preparing for a new round of global tariffs, which could put more upward pressure on import prices in the second half of the year.
Even before the latest attacks, the International Monetary Fund had downgraded its forecast for economic growth this year. The IMF expects the global economy to grow 3% in 2026, down from 3.5% last year.
"The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions," the IMF warned in its latest outlook.
Renewed fighting between the U.S. and Iran is once again rattling the global economy. Oil prices jumped, stock prices fell today after President Trump declared an end to the two countries' shaky ceasefire. Now, this news could bring more pain at our gas pumps and more pressure on the Federal Reserve, which is already fighting stubborn inflation. NPR's Scott Horsley is here. Hey, Scott.
KELLY: We know what's happening in the war is the U.S. attacked dozens of targets in Iran overnight. That was in retaliation for what appeared to be Iranian attacks on a few cargo vessels. What is happening with economic fallout so far?
HORSLEY: Well, it's once again brought a halt to shipping in that vital energy corridor, the Strait of Hormuz. Oil and gas traffic had partially recovered while the ceasefire was in effect. But it's now back to a standstill. And as a result, we've seen about a 5% to 6% jump in crude oil prices. Now, oil prices are still well below their peak at the height of the war this spring. And energy analyst John Kilduff of Again Capital says that's a sign that traders are still trying to figure out whether this is a whole new log jam or just a speed bump.
JOHN KILDUFF: We are subject of the whims of President Trump. He could announce a great, terrific phone call or two that reverses all of this in no time flat. So these are very volatile times we're living in.
HORSLEY: Before this latest dustup, oil prices had fallen all the way back to their prewar levels. But, you know, this is just another reminder that there's still a lot of uncertainty about how this conflict is going to play out. That uncertainty is also weighing on the stock market. The Dow Jones Industrial Average tumbled more than 575 points today, or a little over 1%.
KELLY: Scott, let's go back to the energy piece of this. What could this, all these developments, mean for energy consumers here in the U.S.?
HORSLEY: Well, it's likely to mean higher prices, at least in the short run. Gas prices had come down about 75 cents a gallon from their wartime peak. But they're still about 80 cents a gallon higher than they were before the U.S. and Israel started this war with Iran. AAA says the average price of regular gas this morning was about $3.79 a gallon. And Kilduff says that's likely to bounce higher overnight.
KILDUFF: The discount party at the pump is over. We're not going to see much relief. We should be going back over $4 a gallon, a national average here, pretty quickly.
HORSLEY: And diesel prices are also likely to climb. And, of course, that has knock-on effects for the cost of everything that gets trucked around the country or shipped around the world.
KELLY: What does that mean, Scott, for the overall cost of living?
HORSLEY: Well, higher energy prices don't help. You know, the spike in gas prices in April and May pushed annual inflation to its highest level in three years. June's inflation reading, which comes out next week, might look a little better since gasoline prices were down last month. But depending on how things play out with Iran, the relief may prove short-lived. And Kilduff says that would be one more challenge for the Federal Reserve as it tries to bring inflation under control.
KILDUFF: The Fed had caught a break here with the rest of us with this oil price and gasoline price decline. They are back in the box with the rest of us in terms of how they're going to have to handle this inflation impulse from this that looks like it's not going to be short-circuited. Instead, it'll persist a bit longer.
HORSLEY: Fed policymakers hold their next interest meeting in three weeks. And it's not just the wartime spike in energy prices they'll be watching. The massive investment in artificial intelligence is driving up prices for building materials and computer chips. For example, Apple just announced a big price increase on iPads and MacBooks. And on top of that, the administration is preparing to impose a whole new round of tariffs this summer. So don't get too comfortable. There could be some more bumps in the road.
KELLY: Thank you for the warning, NPR's Scott Horsley.