NEW YORK (AP) – Oil prices rose Monday on concerns that a war with Iran could cut off global oil flows and worsen inflation. U.S. stocks, meanwhile, turned from sharp losses to a small gain.
Crude oil prices rose more than 6%, which will likely mean higher prices at the gas pumps soon. That would not only hurt American households, whose expenses make up a large part of the U.S. economy, but also businesses with huge fuel bills.
The S&P 500 fell as much as 1.2% in early trading, and cruise lines and airlines were trailing lower. But U.S. stocks quickly pared those losses, as past military conflicts typically don’t produce sustained declines for the market, and the index ended the day with a gain of less than 0.1%.
The Dow Jones industrial average was down 73 points, or 0.1%, and the Nasdaq composite was up 0.4%. Both also bounced back from heavy losses.
Natural gas prices remain high, meanwhile, which could push up heating bills for the rest of the winter, after a major supplier of liquefied natural gas to Europe said it would halt production because of the conflict. Gold rose 1.2% as investors looked for safe havens and as US officials tried to convince the world that this war would not last forever.
US Defense Secretary Pat Hegseth said on Monday that this is not Iraq. “It’s not endless.”
Generally, Treasury yields also fall in the bond market when investors feel nervous. But yields have risen instead, in part because higher oil prices will put pressure on inflation, which is already worse than almost everyone else. This could tie the hands of the Federal Reserve and prevent it from lowering interest rates.
Low interest rates can boost the economy and the labor market, but they also worsen inflation. Higher rates can do the opposite.
Past military conflicts in the Middle East have not caused long-term declines for markets. For this war to deplete US reserves significantly and sustainably, oil prices would need to rise above $100 per barrel, according to Morgan Stanley strategists led by Michael Wilson.
Oil prices are still well above those levels, even with Monday’s jump. Benchmark US crude rose 6.3% to settle at $71.23. Brent crude, the international standard, rose 6.7% to $77.74 a barrel.
That helped the U.S. stock market pare some of its heavy, opening losses. Morgan Stanley also said that the S&P 500 has historically risen by an average of 2%, 6% and 8% in the one, six and 12 months following “geopolitical risk events”. It goes back to the Korean War, which began in the 1950s, and the Suez Crisis of 1956.
