Global Markets Tumble as Iran War Intensifies

A global market sell-off intensified Tuesday, as Iran expanded its retaliatory attacks around the Persian Gulf region, and US and Israeli officials signaled that strikes on Iran could continue for weeks. Stocks and bonds slipped, and oil and gas prices surged.

The sharp rise in energy prices appeared to be driving investors' concerns that the war could stoke inflation. When the conflict began, investors began raising inflation expectations and dialed down expectations for the number of times the Federal Reserve would cut interest rates this year -- something the central bank is likely to do only if the inflation outlook is more stable. With Iran's retaliatory strikes widening Tuesday and the Trump administration warning that the war could be prolonged, that outlook seems more uncertain now.

"In a prolonged conflict, the combination of higher energy costs, disrupted logistics and a generalized confidence shock would constitute a meaningful drag on global trade volumes at precisely the moment the world economy was still digesting the inflationary and growth consequences of the tariff shock," analysts at ING bank noted. "The mother of all bad timings."

Disruption to shipping on the Strait of Hormuz, the crucial waterway on Iran's southern border through which a large share of the world's oil and gas passes, has upended energy markets. Oil prices continued to surge Tuesday, with Brent crude oil, the global benchmark, rising more than 7%, pushing past $80 a barrel, its highest level since mid-2024. The price of US gasoline jumped overnight, up 11 cents to $3.10 per gallon, according to AAA.

Natural gas prices soared. European natural gas futures jumped for a second day; prices have roughly doubled over the past two days. A measure of gas cargoes in Asia rose 45% Tuesday. Qatar, a major exporter of liquefied natural gas to buyers in Asia and Europe, halted liquefied natural gas production after attacks on its facilities Monday. On Tuesday, Qatar's state-owned energy company said it would also pause the production of "some downstream products" like polymers and aluminum.

US stocks opened sharply lower Tuesday, with the S&P 500 down 1.5%. The day before, markets in New York recovered from early declines to close slightly higher. "Markets have a tendency to downplay shocks when the unexpected happens," Robin J. Brooks, a senior fellow at the Brookings Institution, wrote in an analysis. "In my opinion, there's a psychological reason for this: If you admit to being surprised, this means you didn't see something coming, which in markets means you failed."

Stock markets in Asia and Europe recorded a second day of steep declines. The main index in South Korea dropped 7% Tuesday, while stocks in Japan fell 3%. The Stoxx Europe 600 index fell nearly 3%, with every market across the Continent in the red.

Bonds around the world sold off, as investors assessed the prospect of a potentially prolonged war worsening inflation and spurring higher interest rates. Rising oil and gas prices could result in increased prices at the pump for consumers and add costs to a wide range of component parts for businesses. The 10-year US Treasury yield, which moves inversely to prices, rose 0.1 percentage points, to 4.1%, a big move in that market. Yields on government bonds in Britain, Germany and Japan jumped even more.

Alongside rising inflation and interest rate expectations, the dollar also rose. The dollar has traditionally been seen as a haven in times of turmoil, but Tuesday's move appeared more tied to the economic outlook. A gauge of the dollar against a basket of other major currencies rose 0.8% Tuesday, a similar increase to the day before. Gold, another traditional haven during times of turmoil, dipped slightly, to around $5,200 per ounce.