Dow Plummets 350 Points After Shocking 1,200 Dive—What’s Driving Oil Prices Through the Roof?

NEW YORK (AP) — A global sell-off in stocks reached Wall Street on Tuesday, leading to significant losses early in the day, although the declines tempered as the trading session progressed. Oil prices surged, exacerbating concerns related to a potential escalation of conflict with Iran.

The S&P 500 index initially plunged by as much as 2.5% due to fears that ongoing hostilities could inflict greater and more prolonged damage to the economy than previously anticipated. However, it managed to reduce its losses to a more modest 0.9% by the afternoon. The Dow Jones Industrial Average was down 377 points, or 0.8%, as of 2:30 p.m. Eastern time, after experiencing a more than 1,200-point drop earlier in the day. The Nasdaq composite also faced a decline, falling by 1%.

This market turmoil followed a day when U.S. stocks opened low but recovered to finish slightly positive. Those gains were largely due to oil prices remaining below critical thresholds, specifically below $100 per barrel. However, this Tuesday, oil prices escalated further, raising alarms among investors.

Brent crude, the international benchmark, briefly shot above $84 per barrel, although it stabilized to approximately $81.17 in afternoon trading, marking a rise of 4.4%. The price for benchmark U.S. crude saw a 4.9% increase to reach $74.71 per barrel. These surges in oil prices were prompted by Iran's recent attacks on the U.S. Embassy in Saudi Arabia, marking an expansion of aggressive targets that now include vital areas for global oil and natural gas production. An area of significant concern is the Strait of Hormuz, where about one-fifth of the world's oil passes, a crucial route for the global economy.

“The Strait of Hormuz is closed,” warned Iranian Brig. Gen. Ebrahim Jabbari, an adviser to the paramilitary Revolutionary Guard, threatening that any ships attempting to pass would be "set on fire."

The uncertainty surrounding the duration of the conflict has left financial markets on edge. A significant military strike by the United States and Israel had reportedly killed Iranian Supreme Leader Ayatollah Ali Khamenei, but President Donald Trump stated late Monday night on his social media platform, “Wars can be fought ‘forever,’ and very successfully” with the extensive munitions stockpile available to the United States.

Despite the chaos, some professional investors expressed optimism that this downturn may not signify the beginning of a prolonged bear market. They suggested that stocks could rebound if the conflict is resolved swiftly, though they acknowledged that clarity on the situation could take time.

In the meantime, rising oil prices exacerbate inflation, which remains high, placing additional financial pressure on American households and businesses due to increased costs for gasoline and shipping. The average price for a gallon of gasoline in the U.S. rose by 11 cents overnight to approximately $3.11, according to data from AAA.

The sell-off trends in global markets were particularly pronounced in energy-dependent countries. In South Korea, the Kospi stock index plunged by 7.2%, marking its worst day since the summer of 2021 as markets reopened after a holiday. Meanwhile, in Japan, the Nikkei 225 index dropped by 3.1%, despite analysts noting that Japan holds a sizable stockpile of oil lasting more than 200 days. In Europe, soaring natural gas prices due to the conflict led to a 3.5% loss for France’s CAC 40 index.

On Wall Street, more than two-thirds of the stocks within the S&P 500 experienced declines. Unlike the previous day, influential technology stocks were unable to buoy the markets, with Nvidia falling by 1.4%. However, among the few winners was Target, which saw its shares rise by 6.5% after reporting better-than-expected profits for the most recent quarter.

In the bond market, Treasury yields rose amid concerns about inflation. The yield on the 10-year Treasury climbed above 4.10% in the morning before settling around 4.04%, up from 3.97% just a few days prior. Higher yields can make borrowing more expensive for U.S. households and businesses, impacting everything from mortgages to bond issuances, and thus putting downward pressure on stock prices and other investments.

In a related development, gold prices dropped by 3.5% to settle at $5,123.70 per ounce, ending a strong run that had seen it rise above $5,300 as investors sought safer assets. High inflation could also hinder the Federal Reserve's ability to cut interest rates, which it had done several times last year, indicating further cuts were anticipated for 2026. The Fed’s rate adjustments are crucial, as lower rates can stimulate the economy and job market but may also worsen inflation.

Traders are now adjusting their expectations for when the Fed might resume rate cuts, pushing forecasts further into the summer, despite Trump's calls for immediate rate reductions. The evolving situation underscores the interconnectedness of global events and their immediate impact on domestic markets.