War Sends Oil Up 8%
Dow futures dropped 500 points following the U.S. attack on Iran, while oil prices spiked 8% for WTI crude. National average gasoline hit $2.98/gallon — up 10 cents in 4 weeks and approaching $3 as consumers rushed to fill tanks Sunday night. Airline stocks got hammered with United falling 8% on Friday due to rising jet fuel costs.
The initial surge in oil prices was a global reaction, with Brent crude, the international benchmark, jumping over 12% to $82 a barrel before settling around $79. The spike followed joint U.S. and Israeli strikes on Iran which reportedly killed Supreme Leader Ayatollah Ali Khamenei, stoking fears of a wider conflict in the Middle East. Fears of a supply disruption are centered on the Strait of Hormuz, a critical chokepoint for global energy. This narrow waterway handles about one-fifth of the world's oil shipments, and shipping companies have already begun rerouting vessels away from the area. Analysts warn that a prolonged closure of the strait could push oil prices above $100 a barrel. The sell-off in airline stocks extended beyond United, with American Airlines shares falling 6.3% and Delta Air Lines dropping 5.8%. The industry is facing a double headwind of surging fuel costs, which can account for up to 30% of operating expenses, and widespread flight cancellations due to airspace closures over Iran, Iraq, Israel, and other nations. While consumers see prices nearing $3.00 at the pump, gasoline futures rose as much as 5% to their highest level since August 2024. Petroleum analysts project that a sustained $5 to $10 increase in the price per barrel of crude oil could translate into a 15- to 25-cent per-gallon increase for gasoline. In response to the supply fears, the OPEC+ alliance announced it would increase oil production by 206,000 barrels per day in April. However, this increase is considered modest, representing less than 0.2% of global demand. The broader economic risk is a surge in global inflation and a potential economic downturn. An analysis by the European Central Bank indicated that a 14% rise in oil prices could increase inflation by 0.5 percentage points while reducing GDP growth. Net energy importers in Europe and Asia are considered particularly vulnerable to the price shock. While airline and travel-related stocks tumbled, defense company stocks rallied on the news of the military action. Shares of defense giants Lockheed Martin and RTX (formerly Raytheon) both surged 8% in premarket trading.
