U.S. stocks spiraled lower throughout the day, with the blue-chip Dow index closing almost 800 points lower, as oil prices climbed above $80 per barrel to the highest level in more than a year after Iran said it hit an oil tanker with a missile off the coast of Iraq.
The missile strike signals wider risks to shipping in the Persian Gulf, beyond the Strait of Hormuz. Iran said earlier it closed the Strait of Hormuz, which about a fifth of the world’s oil and liquified natural gas passes through. Though President Donald Trump offered U.S. Navy ships as escorts through the waterway, shipping bottlenecks are stalling oil and container ships. The blockages limiting supply and attacks spreading to more countries in the region pushed oil prices up to the highest level since January 2025.
Most analysts and economists aren’t yet worried the recent rise in oil prices will drastically push inflation higher or push the economy to a standstill, but they acknowledge the longer the disruption, the higher the chances inflation will flare.
“The situation is highly uncertain but, if WTI (West Texas oil) remained near $80 for a few months before drifting down over the rest of the year, then the peak direct impact,” on inflation may be only about 0.3%, said Stephen Brown, deputy chief North America economist at research firm Capital Economics.
The blue-chip Dow closed down 1.61%, or 784.67 points, to 47,954.74, and the broad S&P 500 slid 0.56%, or 38.79 points, to 6,830.71. The tech-heavy Nasdaq dropped 0.26%, or 58.498 points, to 22,748.986. Meanwhile, West Texas oil jumped 6.64% to $79.62 per barrel.
More than higher oil prices rattle markets
Beyond oil prices, some economists worry about the resilient economy keeping inflation elevated.
“The arguably more important issue for the Fed is that higher oil prices have come at a time when other indicators of pipeline inflation pressures are also picking up,” Brown said.
Tariffs and the AI build-out are also putting upward pressure on producer prices for IT equipment, most recently memory chips, he noted. Higher memory chip prices will increase consumer prices for IT equipment and cell phones this year, he said.
All of these factors could keep the Federal Reserve from lowering interest rates this year, Brown said.
The CME Fed Watch tool, which uses market data to estimate the chances the Fed will make a rate move, shows a mere 2.7% chance for a rate cut this month, less than 11% in April and about 30% in June. All those odds for a rate cut are lower than they were a month ago.
The benchmark 10-year Treasury yield has risen for four days in a row on all these inflation fears. It was last up at 4.131%.
(updated with new information.)
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
This article originally appeared on USA TODAY: What Iran did to cause the Dow to plunge nearly 800 points
Reporting by Medora Lee, USA TODAY / USA TODAY
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