Oil prices surged to their highest levels since July on Tuesday after the 60-day US-Iran ceasefire expired without a renewal, with President Donald Trump ruling out an extension and Tehran warning it would shift to a fully offensive military posture.
Brent crude, the international benchmark, climbed above $90 a barrel, while West Texas Intermediate traded above $84, as markets priced in the renewed risk of supply disruptions through the Strait of Hormuz, the critical chokepoint that carries roughly a fifth of the world seaborne oil trade.
Ceasefire Collapse Triggers Market Turmoil
The collapse of diplomatic efforts sent shockwaves through financial markets. Trump told reporters on Monday that he did not want to extend the ceasefire and that Iran was unlikely to agree to the deal he wanted, calling instead for Tehran surrender. A senior Iranian official told Reuters that Iran would adopt a fully offensive posture because peace talks had stalled.
Outward progress towards peace talks and a resumption of oil tanker traffic through the Strait of Hormuz has ground to a halt, threatening to extend the conflict that the US and Israel launched with attacks on Iran on February 18, RTE reported.
Markets Sell Off Across the Board
The surge in crude prices intensified pressure on equity markets already struggling under the weight of elevated bond yields. The S&P 500 fell as CNBC reported, with the 30-year US Treasury yield trading near 5.3 percent, its highest level in roughly two decades. Chip stocks were hit particularly hard, with Bloomberg reporting a broad selloff in semiconductor names as investors weighed the impact of higher-for-longer interest rates on growth valuations.
Gold, traditionally a safe-haven asset, fell 1.39 percent to $4,355 an ounce as the surge in bond yields made non-yielding assets less attractive to investors, even amid the geopolitical uncertainty.
Strait of Hormuz Risks Return to Forefront
The ceasefire, signed on June 18 after months of conflict that had effectively closed the strait, had allowed commercial shipping to resume through the waterway. Iran foreign minister had declared the passage completely open for the duration of the truce. With the agreement now expired, market participants are again weighing the risk of a full closure, which analysts estimate could push Brent crude toward $125 a barrel in a worst-case scenario.
The International Energy Agency had previously warned that a prolonged closure could push prices toward $150 to $170 per barrel before demand destruction creates a ceiling. Meanwhile, the VIX volatility index fell 4.45 percent to 14.60, suggesting that while markets were selling off, traders were not yet pricing in a panic scenario.
Sources: Reuters; CNBC; RTE; Bloomberg; CNN
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