Global markets stumbled Thursday as renewed U.S. military action against Iranian targets sent oil prices surging more than $2 per barrel, threatening to reignite inflationary pressures that had briefly eased just a day earlier. The volatility underscores the economic cost of the nearly three-month-old conflict and raises questions about supply chain stability as businesses face renewed uncertainty over energy costs.
U.S. officials said Central Command forces shot down four Iranian one-way attack drones that posed a threat near the Strait of Hormuz. The U.S. military also hit an Iranian ground control station in Bandar Abbas that was about to launch a fifth drone. Those attacks followed others earlier in the week.
Market Disruption Spreads
In early European trading, Germany's DAX was nearly unchanged at 25,175.63 and the CAC 40 in Paris lost 0.4% to 8,172.84. Britain's FTSE 100 slumped 0.9% to 10,416.62. The futures for the S&P 500 and the Dow Jones Industrial Average edged 0.1% lower.
Asian markets bore the brunt of investor anxiety. Japan's Nikkei 225 lost 0.5% to 64,693.12, while the Kospi in South Korea lost 0.5% to 8,185.29. Hong Kong's Hang Seng index shed 1.3% to 25,006.16, while the Shanghai Composite index edged 0.1% higher to 4,098.64. In Australia, the S&P/ASX 200 declined 1.4% to 8,592.90, while Taiwan's Taiex dropped 1.4%.
Tan Boon Heng of Mizuho Bank in Singapore said, "Conflicting reports on the contours of a U.S.-Iran deal dampened risks sentiments as markets grow increasingly wary about the possibility of a deal," and added, "While there is desire to maintain the ceasefire with both Iran and (asterisk)the) U.S. toning down language on renewed attacks and persisting with indirect channels of communication, it remains remarkably hard to envisage how a compromise can be reached on key issues."
Energy Costs Spike Again
After the latest strikes, in early Thursday trading Brent was up $2.14 at $94.44 a barrel. A barrel of benchmark U.S. crude gained $2.12 to $90.80. The reversal came just one day after Brent crude oil had fallen 4.6% to $92.25 and U.S. crude had dropped 5.5% to settle at $88.68, back to where it was in mid-April.
Prices have moderated from surging to well over $100 a barrel on hopes that the United States and Iran can reach an agreement to reopen the Strait of Hormuz and allow oil tankers to exit the Persian Gulf for deliveries again.
President Donald Trump said Iran is "negotiating on fumes" and said November's midterm elections in the United States won't make him rush into a deal to end the nearly three-month-old conflict.
Brief Relief for Businesses
On Wednesday, U.S. stocks inched to more records after oil prices declined more than 4%, easing pressure on consumers and businesses worldwide. The S&P 500 edged up by less than 0.1% to 7,520.36 and the Dow industrials rose 0.4%, to 50,644.28. The Nasdaq composite gained 0.1% to 26,674.73. All three indexes set all-time highs.
Stocks of companies with big fuel bills helped lead the way on hopes that lower oil prices will remove a big drag on their profits. Norwegian Cruise Line Holdings climbed 6.1%, and United Airlines rallied 6.3%. Delta Air Lines rose 3% and set an all-time high.
Stocks have been able to run to records despite the painful inflation and uncertainty caused by high oil prices largely because companies have reported surprisingly strong profits for the start of 2026, and the forecast is for them to continue.
In other dealings early Thursday, the U.S. dollar rose to 159.50 Japanese yen from 159.51 yen. The euro slipped to $1.1611 from $1.1626.
Why This Matters:
The renewed spike in oil prices threatens to undermine the economic stability that businesses and consumers desperately need after months of elevated energy costs. Higher fuel prices act as a tax on economic activity, raising costs for transportation, manufacturing, and consumer goods while potentially reigniting broader inflation. The volatility demonstrates how geopolitical instability directly impacts Main Street through higher prices at the pump and increased business expenses. Companies that had just begun to see relief from fuel cost pressures now face renewed uncertainty in planning and budgeting. The conflict's continuation also highlights the strategic importance of energy security and domestic production capacity. With November's midterm elections approaching later this year, the administration's handling of both the conflict and its economic fallout will face voter scrutiny, particularly if inflation accelerates again.