New clashes between Washington and Tehran rattled financial markets Monday, sending crude oil prices up sharply and reviving concerns that the worst oil-supply disruption in modern history will keep inflation elevated. Benchmark U.S. crude futures closed 5.5% higher at $92.16 a barrel. Brent crude rose 4.2% to $94.98 a barrel, erasing a significant portion of the steep monthly decline the global benchmark posted in May.
The oil spike pushed bond prices lower and lifted the yield on the 10-year Treasury note to 4.475%, up from 4.452% on Friday, according to Tradewib. Higher bond yields ripple through the economy by raising borrowing costs for mortgages, corporate debt, and consumer loans.
The escalation began after Iranian media reported that Tehran would stop communicating with diplomatic negotiators and would pursue what Iranian sources described as a “complete closure” of the Strait of Hormuz. The waterway handles roughly a fifth of the world’s daily oil throughput, and any sustained disruption there reverberates through global energy markets. Iran’s move came in response to Israel’s ongoing offensive against Hezbollah in Lebanon.
President Trump wrote on social media that Israel and Hezbollah had agreed not to attack each other and that talks with Iran were continuing. His comments provided only a partial counterweight to the market’s anxiety. American warplanes had attacked Iranian radar sites and drone facilities in the days before, and Iran’s Islamic Revolutionary Guard Corps said it responded to those strikes.
“The actual willingness of both [U.S. and Iran] to negotiate with each other, it just seems questionable. It introduces uncertainty,” Scott Kimball, chief investment officer at Loop Capital Asset Management, said.
The renewed tensions arrived after weeks of growing optimism about a swift peace deal had provided breathing room for a Wall Street rally centered on artificial-intelligence stocks. That AI-fueled trade had powered one of the largest two-month rallies in the S&P 500’s history.
On Monday, skepticism about the White House’s diplomatic push weighed on shares of manufacturers, retailers, and many big banks. Nine of the S&P 500’s 11 sectors closed in the red. But outsized gains in technology and energy stocks — the former buoyed by the ongoing AI investment cycle, the latter by the oil-price surge — were enough to pull the broader index up 0.3%. The Dow Jones Industrial Average rose 0.1%, adding 46 points, and the Nasdaq composite gained 0.4%. All three indexes closed at new record highs.
Ship-tracking data underscored the severity of the supply disruption. Kpler, a firm that monitors global tanker movements, confirmed just 10 vessel crossings of the Strait of Hormuz over the weekend, fewer than the prior week. The constrained traffic through the waterway has been a persistent feature of the U.S.-Iran conflict, which began earlier this year and has repeatedly sent oil prices above $90 a barrel.
The oil rally capped a volatile stretch for energy markets. After benchmark Brent crude futures in May posted their steepest monthly decline since the pandemic, Monday’s jump signaled that the market’s recent calm may have been premature.
The trading firm Ritterbusch & Associates told clients Monday that Trump’s assurance “that it ‘will all work out well in the end’ could prove valid, but with the ‘end’ developing around mid-summer rather than anytime this month.” In the meantime, the firm said many speculators are “simply moving to the sidelines amidst extreme price volatility.”
The market’s split personality on Monday — oil surging, bonds selling off, most stocks falling, but the index-capping heavyweights in tech and energy rising — captures the uneasy equilibrium investors now face. Diplomatic talks continue, but so do military strikes. Peace may be approaching, but the Strait of Hormuz remains far from open.