Oil Just Hit A Price That Has Markets On Edge

Oil prices climbed above $100 a barrel Thursday for the first time since May as markets reacted to a major escalation in the war with Iran. 

Brent crude, the international benchmark, briefly traded above the $100 threshold after Iranian-backed Houthi militants attacked two oil tankers transiting the Bab el-Mandeb Strait in the Red Sea. The attacks heightened concerns about global oil shipments as disruptions continued in the Strait of Hormuz. Together, the two waterways handle roughly 30% of the world’s oil.

Goldman Sachs warned Brent crude could climb as high as $120 per barrel if disruptions continue in both the Strait of Hormuz and the Bab el-Mandeb Strait.

President Donald Trump responded Thursday by warning Iran would face dire consequences if the Houthis continued targeting commercial shipping.

Trump said on social media that if the Houthis “do this again, the U.S. will hold Iran responsible, in that the Houthis are a Surrogate and/or Proxy of Iran, and major military punishment will be inflicted upon Iran and, of course, the Houthis, themselves.” 

Reuters separately reported that Iran earlier this month flew military commanders, advisers, gold, and weapons into neighboring Yemen, citing two Iranian sources who said between 10 and 21 Islamic Revolutionary Guard Corps commanders were aboard the flight “to support Houthi operations and provide training on new missile systems.”

The spike in oil prices also rattled financial markets. The Nasdaq 100 was on pace for its worst day in a month, while the Nasdaq Composite fell 2.6%, the Dow Jones Industrial Average dropped 1.1%, and the S&P 500 lost 1.4%.

The selloff came despite otherwise encouraging economic news, with initial jobless claims falling to their lowest level since 1969. 

A sustained rise in crude prices could also complicate the fight against inflation by increasing fuel and transportation costs throughout the economy.

Despite Thursday’s surge, Goldman Sachs maintained its forecast for Brent crude to average about $80 per barrel in the fourth quarter, citing stronger-than-expected production and weaker demand from China, South Korea, and the Middle East.