Oil Price Surge and Economic Impact

Oil prices spiked on Thursday due to intensified conflict in the Middle East, posing a threat to global crude supply. This surge has notably influenced Wall Street, where stocks are declining, particularly for Alphabet and Tesla. The S&P 500 saw a 0.8% drop, and it might experience its first consecutive weekly loss since March. By 9:35 a.m. Eastern time, the Dow Jones Industrial Average fell by 363 points, a 0.7% decrease, while the Nasdaq composite declined by 1.6%.

Effects on Businesses and Economy

The rise in oil prices impacts numerous businesses by increasing their operational costs. Consumers are diverting more of their expenditures toward higher fuel prices. Brent crude, the global benchmark, climbed 6.1% to $99.78 per barrel. Earlier, it momentarily surpassed $100, hitting the highest point in two months, after attacks on Saudi oil tankers in the Red Sea. The Red Sea is a crucial path for transporting Middle Eastern crude, alongside the Strait of Hormuz.

President Donald Trump warned the Houthi rebels in Yemen, backed by Iran, of harsh military retaliation if attacks on ships persist. Recently, Brent prices were below $72, driven by expectations of the Strait of Hormuz reopening for oil tankers, following US-Iran escalations.

Inflation and Interest Rate Concerns

Increasing oil prices threaten to push inflation higher. This scenario might compel the Federal Reserve and other central banks to hike interest rates, potentially slowing economies and affecting stock and investment valuations. The 10-year Treasury yield rose to 4.70%, a notable jump from 4.67% the previous day and 3.97% before the US-Iran conflict began. Such increases are reflected in soaring long-term US mortgage rates over the past year.

Corporate Losses

Companies burdened by expensive fuel experienced severe stock losses amid fears of escalating costs. American Airlines dropped by 9.1%, despite reporting unexpectedly high spring profits. The airline increased fares to balance these costs. Southwest Airlines fell by 4.2%, producing better-than-expected profit and revenue recently, and extracting more profit from each dollar of revenue during spring.

Tesla’s stock, significantly influential within the S&P 500, plummeted by 9.8%. Elon Musk’s company disclosed weaker-than-anticipated quarterly profits. Alphabet’s stock dipped by 5.7%, despite reporting strong profits and revenues, driven by investor concerns over AI investment expenditure. CEO Sundar Pichai noted AI demand boosted cloud revenue growth to 82% last quarter, yet investors remain apprehensive about long-term profitability.

Global Market Reactions

European stock markets faced sharp declines as oil prices surged, with France’s CAC 40 dropping 1.7%. In contrast, Asian markets exhibited early strength, marked by South Korea’s Kospi rising 4.4%.

AP Business Writers Matt Ott and Elaine Kurtenbach contributed reporting.