Global financial markets witnessed a turbulent week as oil prices surged to their highest level since 2023 amid escalating tensions linked to the ongoing conflict in the Middle East. The spike in energy prices, combined with disappointing US employment data, triggered a sharp sell-off across Wall Street and raised fresh concerns about the health of the global economy. Brent crude, the international benchmark for oil prices, jumped sharply and settled at USD 92.69 per barrel after rising as much as 8.5 per cent during trading. At one point it crossed USD 94, marking its highest level since September 2023. Meanwhile, benchmark US crude also breached the USD 90 mark for the first time since 2023, surging 12.2 per cent to USD 90.90.ย The sharp rise in oil prices has been linked to the expanding war in the Middle East, which now involves areas crucial for global oil and gas production and transportation.
Wall Street suffers worst week since October
The surge in oil prices and a weak US labour market report weighed heavily on investor sentiment. The S&P 500 index fell 1.3 per cent after fresh data revealed that US employers reduced more jobs than they created in the previous month.
The Dow Jones Industrial Average dropped dramatically during trading, falling by as many as 945 points before closing 453 points lower — a decline of 0.9 per cent. The technology-heavy Nasdaq Composite also recorded losses and declined by 1.6 per cent. According to Brian Jacobsen, chief economic strategist at Annex Wealth Management, the situation has sparked fears of a troubling economic scenario.ย “You can’t sugarcoat this report. A negative payroll number combined with a big jump in oil prices will have traders worrying about stagflation risks,” he said as per The Associated Press.
Stagflation fears begin to rise
Stagflation refers to the difficult economic condition where slow economic growth coincides with high inflation. The latest developments have triggered concerns among economists and investors that such a situation may be emerging. Adding to the anxiety, another report released on Friday showed that US retailers generated lower-than-expected earnings in January. This raised doubts about whether American consumers, who are a key driver of economic growth, are nearing the limits of their spending capacity.
Federal reserve faces a policy dilemma
The US Federal Reserve usually responds to signs of economic slowdown by cutting interest rates to stimulate growth. Lower borrowing costs help households secure loans and enable businesses to expand operations.
However, the current situation is more complicated. While weaker economic data suggests the need for lower interest rates, rising oil prices could push inflation higher. This limits the Fed’s ability to respond quickly.
The central bank had already reduced its benchmark interest rate several times last year and had indicated further cuts could happen this year. But the latest spike in energy prices could complicate those plans.
Strait of Hormuz in focus
Energy markets are now closely watching developments around the Strait of Hormuz near Iran. Nearly one fifth of the world’s oil supply passes through this narrow maritime corridor. The US government recently outlined a plan to provide insurance coverage for ships travelling through the strait — a move earlier announced by President Donald Trump. However, the announcement did little to calm oil markets. Analysts warn that if oil prices climb to around USD 100 per barrel and remain elevated, the global economy could face serious pressure.
Market volatility continues worldwide
Financial markets have experienced extreme volatility throughout the week as investors tried to gauge how the conflict might impact global energy supplies. On Monday, the S&P 500 initially dropped 1.2 per cent at the opening bell but later recovered to end the day slightly higher. Such rapid swings have become common as traders react to new developments in the conflict. Meanwhile, President Donald Trump recently said he is seeking an “unconditional surrender” from Iran — a statement that appears to rule out negotiations for the time being.
Bond market and smaller stocks under pressure
The bond market also reacted to the developments. Yields on US Treasury bonds fluctuated as rising oil prices pushed them upward while weak economic data pulled them lower. The yield on the 10-year Treasury note briefly climbed to around 4.19 per cent before settling near 4.14 per cent. This is higher than the 4.13 per cent recorded a day earlier and significantly above the 3.97 per cent level seen a week ago.
Smaller companies on Wall Street suffered the most as these firms often depend heavily on borrowing to fund expansion and are more vulnerable to economic slowdowns. The Russell 2000 index, which tracks smaller stocks, fell sharply by 2.3 per cent.
Travel and logistics companies hit hard
As per reports, companies with large fuel expenses were among the worst performers during the market downturn. Freight carrier Old Dominion Freight Line fell 7.9 per cent, cruise operator Carnival declined 5 per cent and Southwest Airlines dropped 5.3 per cent. By the end of trading, the S&P 500 had lost 90.69 points to close at 6,740.02. The Dow Jones Industrial Average ended at 47,501.55 after dropping 453.19 points, while the Nasdaq Composite slipped 361.31 points to settle at 22,387.68.
Global markets show mixed reaction
Stock markets across the world reacted differently to the turmoil. European markets recorded losses, with London’s FTSE 100 falling 1.2 per cent. In contrast, Asian markets ended with mixed results. Hong Kong’s Hang Seng index rose 1.7 per cent. South Korea’s Kospi remained largely unchanged after witnessing dramatic volatility earlier in the week, including a historic 12.1 per cent drop on Wednesday followed by a 9.6 per cent rebound the next day.
ALSO READ:ย US-Israel-Iran War LIVE: Saudi Arabia intercepts drones headed for an oil field