Key TakeawaysUS stocks dipped early Monday after European and Asian peers fell more sharply, as the oil prices rally continued, hitting import-dependent economies especially hard.Brent crude oil prices spiked to nearly $120 per barrel before slightly paring gains, after major regional producers cut energy production.US President Donald Trump said Sunday that higher oil prices were a “very small price to pay” for the destruction of Iran’s nuclear capabilities.
Equities fell at the open on Monday as energy prices showed no signs of halting their rally, amid production cuts and an exchange of strikes on oil storage facilities throughout the Middle East.
The Morningstar US Index was down 0.6% in early trading, while the S&P 500 and the tech-heavy Nasdaq each shed about 1%. The Morningstar Europe Index slumped 1.8% in dollar terms on Monday morning, while Asian stocks closed nearly 3.9% lower.
Market volatility, as measured by the Cboe Volatility Index, also spiked above 30 for the first time since April 2025’s tariff meltdown.
“Global equity markets have been dealt a significant blow as we kick off a new week, with traders waking up to the potential consequences of the Middle East conflict that only ever seems to deteriorate by the day,” Joshua Mahony, chief market analyst at Scope Markets, says.
“While much of the past week was spent hoping that this would be a short-term conflict that ultimately resolves with oil flowing globally once again, the weekend targeting of Iranian oil facilities spells out a new phase to the conflict that ultimately brings significant consequences for the long-term supply dynamic once the dust settles,” Mahony adds.
Energy Price Spike Continues
Major Middle Eastern energy producers including Kuwait, Iran and the UAE cut production amid ongoing strikes in the region, while Bahrain Petroleum Company (Bapco) became the region’s second producer after Qatar to declare force majeure.
Qatar’s energy minister told the FT last week that continued disruption to Gulf energy exports could drive oil prices to $150 a barrel within two to three weeks.
US President Donald Trump said Sunday, in a post on truth social, that increased oil prices were a “very small price to pay” for the destruction of Iran’s nuclear capabilities.
Brent crude oil prices jumped around 30% to nearly $120 per barrel in early Asian trading Monday, before moderating after Saudi Arabia reportedly offered 4.6 million barrels of crude via a pipeline to Yanbu on the Red Sea, according to Bloomberg. At the time of the US market open, Brent crude was up 10% at $102 while WTI crude was up 10% at $100.
What the Iran War Means for European Inflation and Interest Rates
South Korea’s KOSPI benchmark on Monday triggered its second circuit breaker since the outbreak of the war, sparking a wider regional selloff, after a ruling party lawmaker warned that the country’s key chip industry was concerned about higher energy prices and supply disruptions hampering production of critical semiconductors.
Indeed, surging energy prices are driving fears of a broader spike in inflation, which analysts warn could weigh on interest rates. Over the past week, traders have shifted their expectations away from cuts and toward likely hikes this year from the European Central Bank and the Bank of England, and potentially fewer cuts from the Federal Reserve.
US Treasury yields ticked slightly higher Monday amid a broadening global bond rout, with the 10-year benchmark adding 0.02 percentage points to 4.156%. Gold fell 1.5% to $5,091.
“History suggests marked and persistent spikes in the price of crude can trigger persistent inflationary cycles,” Bank of America analysts write in a note.
“The initial base case with oil prices around $15 higher than the pre-war level was not particularly concerning for inflation. But the most recent escalation leading oil prices to rise above $100 could become concerning if it proves persistent.”
The US’s greater energy security has seen it fare better than its European and Asian peers from the recent global rout, with investors reversing a recent ex-US trade and piling into the dollar.
“The US dollar saw strong inflows as investors sold their European and Asian holdings – reversing the earlier rotation trade – and moved back into US dollar. The dollar has the advantage of naturally benefiting when energy prices rise, as most energy trade is denominated in dollars and rising energy prices increase the dollar demand, pushing its price higher,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says.