Fear of prolonged Iran war sends markets downward

• Nasdaq, FTSE and Gulf markets down
• Oil prices broadly flat
• Attacks in Strait of Hormuz

Renewed fears that the conflict in the Middle East may drag on for longer than expected, prolonging the stoppage of commercial shipping through the Strait of Hormuz, hit international financial markets hard on Thursday, while a US move to increase access to oil had little effect on crude prices early on Friday.

Brent futures were broadly flat in early trading on Friday, down 0.1 percent to $100.36 a barrel by 0458 GMT, and US West Texas Intermediate crude fell 0.36 percent to $95.37.

Oil prices had eased slightly after the US authorised countries to buy sanctioned Russian oil and petroleum to lower the economic impact of the war.

Kieran Tompkins, a senior climate and commodities economist with Capital Economics, said ongoing volatility in short-term crude prices is receiving all of the attention, but it is not the only story.

“There have also been large moves in the shape of the oil futures curve and in the options market,” he said. “As it stands, investors in the options market put a one-in-five chance of Brent crude prices being $100 per barrel or higher in three months’ time.”

US markets fell, with the S&P 500, Nasdaq and Dow Jones closing 1.5 percent, 1.8 percent and 1.6 percent down, respectively. The FTSE 100 in London slid 0.5 percent.

Gulf markets also struggled. Dubai’s benchmark dropped 3.6 percent to a nine-month low, Abu Dhabi’s index down 2.3 percent and Saudi Arabia’s a more modest 0.5 percent. 

Spot gold rose 0.8 percent to $5,118.75 per ounce, as of 02:34 GMT, while US gold futures for April remained at $5,123.30.

The International Maritime Organization confirmed damages to the container ship Source Blessing on Thursday, approximately 35 nautical miles north of the Jebel Ali port in the UAE. 

Port operator DP World said on Thursday that its facilities are intact and operational, but that traffic has dropped.  

“We are deploying regional rerouting and operational mitigation measures to maintain supply chain continuity during this period,” CEO Yuvraj Narayan said in a statement.

The United Kingdom Maritime Trade Operations group has logged 20 attacks on vessels in the Arabian Gulf, Strait of Hormuz and Gulf of Oman since the start of the conflict on February 28, and four additional reports of suspicious activity. 

In his first public statement since being appointed to succeed his father as Iran’s supreme leader, Mojtaba Khamenei said Thursday the waterway’s effective blockage needs to continue “to pressure the enemy,” according to multiple news reports. 

Energy flows

French energy major TotalEnergies said it has closed or is in the process of shutting down production in Qatar, Iraq and offshore in the UAE, comprising some 15 percent of its global output. 

Norway’s maritime authority ordered Norwegian-flagged vessels not to transit through the Strait of Hormuz “until further notice” because of “unacceptable attacks on civilian vessels.” 

India, one of the countries most dependent on energy imports from the Gulf region, is negotiating with Iran to ensure safe passage of more than 20 tankers stranded around Hormuz, Bloomberg reported, citing sources. 

Moody’s Ratings said in a report on Thursday that the conflict is increasing tail risks – rare, hard to predict outcomes – for maritime and aviation specialty insurance, but that it still expects losses to remain contained under its baseline scenario of “short-lived” hostilities that last “a matter of weeks.”

“The duration of the conflict is an additional risk factor, with longer hostilities increasingthe likelihood of larger and more complex loss scenarios,” the company said. 

Further reading:

• Mishal Kanoo: War won’t break Dubai’s economic model
• Iran war GPS jamming exposes shipping and consumer risk
• Middle East tourism losing $600m a day in Iran war

US Treasury Secretary Scott Bessent told Sky News on Thursday that the US Navy may look to partner with an international coalition to escort vessels through the Strait of Hormuz. 

Commercial aviation in the region also remains hobbled amid air space closures and continued Iranian threats on Gulf facilities, including two drone strikes against Dubai International Airport late Wednesday.

Only 153 flights departed DXB Thursday by 5pm UAE time, 60 flights left Muscat, 20 Abu Dhabi, 16 Doha and none took off from Bahrain, according to the latest data from aviation analytics company Cirium.