The spread of the Middle East conflict to the Red Sea on Thursday is pushing oil prices to nearly $100 a barrel, reigniting fears of an inflation shock and causing global stock markets to drop.
The spread of the conflict in the Middle East to the Red Sea pushed oil prices to the $100 per barrel mark on Thursday, reigniting fears of an inflation shock and causing global stock markets to drop.
The price of Brent crude, the global benchmark, crossed the symbolic $100 per barrel for the first time since the end of May, “as Houthi attacks increase the risks to Red Sea supply routes,” notes Soojin Kim, an analyst at MUFG.
Around 2:00 PM GMT, Brent surged 5.96% to $99.68 per barrel, while its U.S. equivalent, WTI, jumped 4.68% to $90.89 per barrel.
The Houthi rebels in Yemen – who announced a blockade of Saudi ports on Monday – claimed “a military operation” against “two Saudi tankers that violated the blockade,” opening a second front in the Middle East war in the Red Sea.
Maritime traffic through the Red Sea has become particularly important for Saudi Arabia because since the start of the war, the kingdom has significantly increased its crude oil exports through the port of Yanbu on the country’s west coast to bypass Iran’s blockade of the Strait of Hormuz.
“Investors were willing to tolerate the shock in the Gulf, assuming that maritime routes could be reorganized and that disruptions would remain geographically limited,” says Stephen Innes, manager at SPI AM. The disruption of a second strategic passage “makes this assumption harder to defend.”These attacks come ‘as Iran continues its actions against ships in the Strait of Hormuz, while the United States has carried out a twelfth consecutive day of strikes against Iran,’ continues Soojin Kim. ‘Both sides have ruled out the prospect of short-term peace talks.’
Tech dives and drags stocks down
Stock markets are plunging together, dragged down by the tech sector after Alphabet’s quarterly results, making it the first tech giant to report.
In New York, in early trading, the Nasdaq – which tracks tech stocks – was down 1.88%, the broader S&P 500 fell 1.01%, and the Dow Jones dropped 0.97%.Google’s parent company posted better-than-expected results in the second quarter, but also raised its investment forecast for the full 2026 fiscal year.
“Investors are no longer willing to cheer every increase in spending without closely looking at the cost,” says Stephen Innes.
Alphabet’s stock dropped 6.14% around 2:00 PM GMT.
“A new big boost in AI spending has brought back a question investors can no longer ignore: how much more capital will be needed for AI development before the returns start matching the ambitions?” Innes wonders.”Alphabet thus kicks off the earnings season with a clear message: artificial intelligence is starting to generate very visible revenue, but it hasn’t yet fully convinced that it will sustainably deliver the expected margins,” summarizes John Plassard from Cité Gestion.
In Europe, markets are also suffering from the spike in oil prices. Paris fell 1.54%, Frankfurt dropped 1.22%, London lost 0.55%, and Milan tumbled 2.34% around 2:00 PM GMT.
Rates at their highest
This latest surge in oil prices, with a barrel at $100, fuels fears of an inflationary shock, as reflected in European government borrowing rates.
The borrowing rates imposed on France to finance its 10-year debt briefly exceeded the 4% mark on Thursday, for the first time since June 2009, before retreating to 3.99% around 1:45 PM GMT.A benchmark in Europe, the German 10-year “Bund” yield went above 3.20% for the first time since 2011, before settling back at 3.19%.
The European Central Bank (ECB) kept all of its interest rates unchanged on Thursday, despite the renewed hostilities in the Middle East and the rebound in energy prices.
ECB President Christine Lagarde called the spread of the Middle East conflict to the Red Sea “alarming.” She also warned that “the full inflationary consequences of the recent energy shock have not yet fully materialized,” according to Daniela Hathorn, an analyst at Capital.com.
