Donald Trump’s dramatic rhetoric is driving the escalation in Iran. Markets are reacting nervously, and energy prices are climbing. Investors still cling to hopes for diplomacy, but time is rapidly running out.
Investors across European financial markets are following the deepening Iran conflict and a US President Donald Trump ultimatum regarding the Strait of Hormuz with growing apprehension. The German DAX index displayed volatility on Tuesday, initially starting cautiously before losing nearly 0.6 percent, falling to 23,030 points at times.
US investors also adopted a cautious stance. At Tuesday’s opening, the Dow Jones Industrial Average and the broader S&P 500 each dropped by approximately half a percent, settling at 46,369 and 6,575 points, respectively. In contrast, the Nasdaq technology index gained a similar percentage, reaching 21,850 points.
Investors Banking on Last-Minute Deals
“Despite escalating geopolitical tensions, some investors appear to be banking on a last-minute deal,” stated market observer Timo Emden of Emden Research. Many investors are holding onto the hope for a diplomatic resolution, overlooking potential risks. Simultaneously, uncertainty is mounting. “As the deadline approaches, nervousness is likely to intensify,” Emden added, noting that the market is once again in a Trump-imposed countdown with an unpredictable outcome.
Trump had issued an ultimatum to Iran, demanding the reopening of the crucial shipping route by Tuesday evening 8 PM (US East Coast time, 2 AM Wednesday German time). Failure to comply, he warned, would result in massive military strikes against the country’s infrastructure. “An entire civilization will die tonight and never return,” he posted on his Truth Social platform. Tehran recently rejected a ceasefire, insisting on a permanent cessation of hostilities.
Oil Price Surges Significantly Above $100
Energy prices reacted acutely to these developments once more. A barrel of North Sea Brent crude temporarily surged by up to 1.8 percent to $111.80, while US WTI crude climbed by as much as 3.7 percent to $116.56. Later in the day, both benchmarks relinquished some of these gains.
Meanwhile, the International Energy Agency (IEA) sounded an alarm. Its head, Fatih Birol, warned that the current crisis is more severe than all previous oil crises combined and poses a significant threat to the global economy. The situation was further exacerbated by new attacks by US forces on key oil facilities. According to various reports, Iranian military targets on Kharg Island in the Persian Gulf were targeted on Tuesday.
According to Norbert Rücker of private bank Julius Bär, the situation in the energy markets remains tense. The threatened escalation around the Strait of Hormuz continues to fuel unrest. While shipping traffic has recently shown some adaptation, partially mitigating supply shocks, trade volumes remain significantly below pre-crisis levels. “Markets are likely to remain very nervous,” Rücker commented, anticipating that oil prices could follow a familiar pattern: a sharp short-term increase, followed by a period of stabilization.
Inflation Fears Resurface
Simultaneously, rising energy prices are fueling concerns about broader economic consequences. The business climate in the Eurozone has recently deteriorated significantly. High oil prices, in particular, could drive inflation and impede economic growth. Economist Patrick Kaczmarczyk of the University of Mannheim warned of widespread global impacts.
Poorer countries, in particular, are suffering a dual blow from rising energy and food prices, coupled with higher financing costs. Without international countermeasures, an exacerbation of debt problems and supply shortages looms. Furthermore, the conflict highlights the inherent risks of heavy reliance on energy and raw materials. Expanding renewable energy sources could effectively mitigate such vulnerabilities.
