Oil prices jump after Iran strikes, U.S. index futures decline

The price of oil rose sharply after the Iranian parliament threatened to close the Strait of Hormuz, the world's main oil artery, in response to U.S. strikes on the country's nuclear facilities. U.S. index futures fell. Most analysts agree that Tehran is unlikely to move to block oil exports and assume that the response will be moderate and will not lead to further escalation. Nevertheless, there are already calculations for other scenarios.

The price of Brent crude soared 5.7% in early trading to $81.4 per barrel, Bloomberg reports, before cutting back slightly, remaining up 4.3% at the time of publication of this text, but still above the $80 mark. The U.S. grade WTI rose by almost the same amount - to $76.9 per barrel.

Futures trading in U.S. stocks started Sunday evening with a moderate decline: futures on the broad market index S&P 500 and on the Dow Jones Industrial Average fell by about 0.6%, contracts on the Nasdaq Composite, in which technology companies have the greatest weight, lost a little more - 0.7%.

Currency markets have also begun to assess the consequences of U.S. strikes on Iran: the dollar gained against the euro, Swiss franc and most major currencies in Sydney trading, отмечает Bloomberg.

- Iran's parliament, following US strikes on Iranian nuclear facilities, has approved the closure of the Strait of Hormuz, through which about a quarter of the world's oil trade passes. It is an unprecedented move in the Islamic Republic's nearly five decades of existence, and could not have been carried out without the explicit approval of Supreme Leader Ayatollah Ali Khamenei, notes Bloomberg. However, the final decision must be made by Iran's Supreme National Security Council, reported local Press TV. U.S. Vice President J.D. Vance stated that it would be «suicidal» for Iran because «the entire country's economy depends on the Strait of Hormuz.»

  - US President Donald Trump on Sunday evening for the first time allowed  regime change in Iran. «It is politically incorrect to use the term regime change, but if the current Iranian regime can't MAKE IRAN GREAT again, why not a regime change????? MIGA!!! (Make Iran Great Again - Oninvest)«, - the American leader wrote on his Truth Social network page.   

- U.S. Secretary of State Marco Rubio called on China to prevent the closure of the Strait of Hormuz. Beijing is a major buyer of Iranian oil and maintains friendly relations with Tehran, CNBC recalls. At the same time, Iranian Foreign Minister Abbas Araghchi arrived in Moscow for consultations on the escalation, Iran's IRNA news agency reported, his quoted Bloomberg.

- Iran's parliament is also considering withdrawing from the Nuclear Non-Proliferation Treaty, Etemad Online reported, citing an unnamed parliamentary official, Bloomberg writes. According to Etemad, the National Security and Foreign Policy Commission called for either suspending or ending cooperation with the International Atomic Energy Agency (IAEA). 

- The extent of damage to Iran's nuclear facilities is still difficult to assess. J.D. Vance stopped short of repeating Donald Trump's words that they were «totally destroyed,» saying only that they had been «severely damaged.»  «Iran now has no way to turn its stockpile of highly enriched uranium into weapons-grade uranium,» he said. The IAEA had previously reported that the stockpile may have been previously moved. No signs of radioactive contamination have been found, according to the agency's latest data.

- There were no signs of threats to shipping in the Strait of Hormuz, the Joint Maritime Information Center reported in the afternoon.

- Bloomberg Economics considers a limited response from Tehran is most likely.  «Iran could carefully plan a response, as it did in 2020 after US strikes killed senior Iranian general Qassem Suleimani. Such a response could include warning the U.S. of the time and place of the strike to allow for the evacuation of bases - most likely in Iraq. The presumed absence of American casualties would allow President Donald Trump to choose a de-escalation path rather than further escalation,» the agency's analysts wrote. They predict that under such a scenario and in the event of a continuation of the military conflict with Israel, the price of oil will be around the $80 per barrel mark. If the standoff with Israel is stopped, it will fall below $70, suggests Bloomberg Economics. A significant Iranian response and a widening conflict would push oil prices up to $130, the agency's chart suggests.

- Analysts at Morgan Stanley stated that a quick resolution to the conflict would allow oil prices to return to levels just above $60 a barrel, while continued tensions could keep quotes in the current range. «Fundamental disruptions to global oil supplies with a possible hit to exports through the region could lift prices significantly from current levels,» they said. A sustained rise in oil prices could trigger a «short-squeeze» on the U.S. currency, although fundamentals «already favor weakening dollar strength,» the investment bank said.

- The price of oil may rise by 10-15% in the short term solely on excitement and uncertainty, argues Konstantin Gnennyi, an analyst at Oninvest. There are no signs that Iran's oil infrastructure is being destroyed. Tehran will not stop oil exports of its own free will, as they bring in huge sums of money, which are at the disposal of the Iranian authorities every day, says Gnennyi.

- Mark Cudmore, global head of macro-analytic products at Bloomberg News, agrees that under such a scenario, oil is likely to rebound during the week. Sharp demand for protective assets will cause the stock market to weaken and Treasury yields to fall at Monday's opening bell, but that movement won't be sustainable without a meaningful new escalation, Cudmore said.

- The decline in stock markets is likely to be shallow, as central bank policy is now much looser than it used to be during oil shocks, explains Manish Kabra, head of U.S. equity strategy at Societe Generale. Also, there is no euphoria in the markets in terms of capital inflows. «It won't be like 2022 when the S&P 500 and European equities fell 20%. In our view, the Fed may ignore potential oil shocks altogether - and that's why I still think the S&P 500 has a good chance of hitting all-time highs this year,» the analyst said.

- «This is a watershed moment for markets,» warned Charu Chanana, chief investment strategist at Saxo Markets in Singapore Charu Chanana. - While oil and gold are likely to rise amid geopolitical risks, the bigger question is whether U.S. assets can still maintain the safe haven premium.

Three scenarios for Iran's response with an assessment of the implications for markets and possible beneficiaries of the escalation, according to Astero Falcon portfolio manager Alena Nikolaeva  

Saxo Bank on strategies for investors during the Iran crisis: how to stay resilient and what risks to watch out for

What you need to know about the Strait of Hormuz, the world's most important oil transportation hub