Worldwide equities experienced a significant decline on Monday, following Donald Trump’s warning that he would “obliterate” Iran’s power facilities if the Strait of Hormuz remained closed.
Trading commenced with a downturn across Asian and European stock exchanges. Specifically, Japan’s Nikkei index decreased by 3.4%, China’s CSI 300 saw a 2.8% reduction, and South Korea’s Kospi recorded a 6.5% loss.
European markets also saw declines: Spain’s Ibex lost 1.9%, France’s CAC 40 decreased by 1.5%, Germany’s Dax dropped 1.9%, and the FTSE 100 was down almost 1.5%.
On Saturday, the American president issued an ultimatum, granting Iran 48 hours—expiring just before midnight GMT on Monday—to unblock the strait, a crucial waterway for approximately one-fifth of the world’s oil and LNG shipments.
In response, Tehran warned it would “irreversibly destroy” critical infrastructure throughout the Middle East, including essential water networks, should the US act on Trump’s threat.
The strait’s closure due to Iranian actions has initiated a worldwide energy crisis. Fatih Birol, the head of the International Energy Agency, has likened this crisis to the combined impact of the 1970s’ dual oil shocks and the repercussions of Russia’s invasion of Ukraine.
The world economy is anticipating significantly elevated oil prices because of the strait’s disruption. Goldman Sachs projects Brent crude, the global benchmark, to average $85 per barrel this year, an increase from its prior forecast of $77. On Monday, oil prices climbed 1.2% to reach $113.34 per barrel, though this remains below the record high of $119.50 per barrel seen earlier in the month.
In the UK, month-ahead gas prices advanced 3.1% to 155p per therm, approximately twice their value prior to the onset of the Iran conflict.
Escalating energy costs have unsettled investors, leading to a decline in gold prices on Monday. The precious metal’s spot price decreased by 5.8% to $4,226.16 per ounce. This downturn is attributed to the anticipation of higher inflation driving expectations for increased interest rates, which typically make gold less attractive due to its lack of yield.
On Monday, Keir Starmer is scheduled to convene an urgent Cobra meeting with key ministers and Bank of England Governor Andrew Bailey to address the economic fallout from the Iranian crisis. According to a Treasury statement, other topics will include energy security, supply chain stability, and the global reaction to the conflict.
The Iranian conflict intensifies calls for Starmer to unveil a support package to assist households with their energy expenses, which are projected to increase by 20% once the current price cap for gas and electricity lapses in late June.
On Monday, investors will closely monitor the bond market, particularly after the 10-year yield – serving as Britain’s borrowing cost benchmark – reached 5% last week, a level not seen since the 2008 financial crisis. This yield increase occurred despite the Bank’s rate-setting committee deciding to maintain interest rates at 3.75% on Thursday.
The US dollar, typically considered a safe haven asset during unstable times, experienced a marginal gain on Monday. The dollar index, which tracks the greenback’s performance against major currencies, advanced by 0.2%.