Dow falls 1,000 points as Iran war pushes oil prices higher

Stocks dropped sharply Tuesday morning as financial markets braced for broader economic blowback from war in Iran.

The Dow Jones Industrial Average was down more than 1,100 points shortly before 11 a.m. EST Tuesday, declining 2.3 percent on the morning. The S&P 500 index was down 2.2 percent, and the Nasdaq composite was down 2.3 percent.

The price of oil continued to surge, with the cost barrel of west Texas intermediate crude for April delivery rising to $77, up from $72 on Monday. Brent crude oil was up to $84 Tuesday, up from $79 on Monday.

Yields on U.S. Treasury bonds also spiked, reflecting fears among investors about a potential inflation surge or government borrowing binge driven by the war.

“The near-term direction for markets will largely depend on Middle East developments. The longer the war continues, the greater the risk of further increases in energy prices, which could keep upward pressure on Treasury rates,” wrote John Canavan, lead analyst at Oxford Economics, in a Tuesday research note.

Stocks dropped Monday, the first day of trading after the U.S. and Israel began strikes on Iran, before rallying to close with gains. The steep Tuesday drop came as the war expanded and Iran announced it would blockade the Strait of Hormuz, potentially choking off oil exports from the Persian Gulf.

“Any threat to vessel safety in the Strait of Hormuz immediately raises the risk of a system-wide energy shock.” said Gregory Daco, chief economist at EY-Parthenon.

“Recent developments increase the likelihood of abrupt shipping delays, rerouting along longer passages, and sudden price spikes — all of which could dampen global growth if tensions persist.”

The U.S. has become far less economically vulnerable to disruptions in oil supply than it was during previous wars in the Middle East after domestic production spiked and net imports plunged during the 2010s and early 2020s.

But a spike in global oil prices could still hit the economy through higher energy prices, which tend to reduce consumer spending and fuel inflation as companies face steeper production, manufacturing and transportation costs.

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