Trump reinstates Iran naval blockade at Strait of Hormuz, oil jumps 9.6% and Wall Street slides

Global markets were jolted on Monday after President Donald Trump announced the United States would reimpose a naval blockade on Iranian shipping through the Strait of Hormuz, a chokepoint for roughly one-fifth of the world's oil trade. The move, which Trump described as the "Iranian Blockade," is set to begin on Tuesday and will target all Iranian ports, oil terminals, and coastal areas, according to a statement from the US Navy-led Joint Maritime Information Center (JMIC).

We are bringing back the IRANIAN BLOCKADE, so named because it stops only Iranian ships or Iran's customers from entering or exiting.

Trump also declared that the United States would henceforth be known as "The Guardian of the Strait of Hormuz" and would impose a 20% fee on all cargo transiting the waterway to cover the cost of providing security in the volatile region.

Oil markets surge

Oil prices recorded sharp gains following the announcement. Brent crude futures for September delivery jumped 9.6% to $83.30 a barrel, while US West Texas Intermediate (WTI) for August delivery climbed 9.4% to $78.14 a barrel. Earlier in the session, Brent had risen as much as 5% to $79.8 a barrel before accelerating its gains.

The spike in energy prices immediately fed into higher inflation expectations, pushing government bond yields higher. The yield on the US 10-year Treasury note reached 4.58%, while equivalent yields rose in Germany (3.12%), the United Kingdom (4.93%), Australia (4.87%), and Japan (2.79%). The Greek 10-year yield stood at 3.7%.

Wall Street falls, chipmakers hit hard

US equity markets closed in the red. The S&P 500 fell 0.79% to 7,515.34 points, the Nasdaq Composite dropped 1.55% to 25,873.18 points, and the Dow Jones Industrial Average lost 138.37 points, or 0.26%, closing at 52,498.64 points.

Semiconductor stocks were among the hardest hit. US-listed shares of South Korea's SK Hynix fell as much as 9% after its Nasdaq debut on Friday, when it had gained 13%. Micron Technology dropped 4%, Sandisk fell 12%, and Seagate Technology declined 6%. Advanced Micro Devices lost 3% and Intel fell 6%.

I have a sense that part of this move reflects some investors having gotten ahead of themselves.

Ben Fulton, CEO of WEBs Investments, added that he still believes the artificial intelligence sector is ultimately "alive and well." Major US bank stocks, including JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and Wells Fargo, also declined ahead of their quarterly earnings reports due this week, alongside results from Netflix, Johnson & Johnson, and UnitedHealth.

Weekend escalation between US and Iran

The market turmoil followed a weekend of direct military exchanges between the United States and Iran. The US military launched a wave of strikes on Sunday against Iran, after hitting 140 targets on Saturday, according to US Central Command (CENTCOM). The strikes were a response to an attack by Iran's Revolutionary Guard on a container ship transiting the Strait of Hormuz.

Iran retaliated on Sunday with attacks on US military installations in Jordan, Kuwait, Bahrain, and Oman, according to the Iranian state news agency Tasnim. Iranian state media reported that the Revolutionary Guard had closed the Strait of Hormuz until further notice, a claim disputed by the US military. CENTCOM stated that the Strait is open for "all vessels wishing to transit lawfully."

The Strait of Hormuz is open.

Trump made the assertion in an interview with NBC News broadcast on Sunday. Maritime intelligence firm Windward recorded nine vessels crossing the Strait on Saturday. The JMIC noted that the southern route through Omani waters remains open for inbound and outbound traffic.

European markets show relative calm

In contrast to the sell-off in Asia and the US, European markets displayed more resilience. Germany's DAX rose 0.28%, Italy's FTSE MIB gained 0.33%, and France's CAC 40 edged 0.09% higher. The pan-European Stoxx 600 slipped a marginal 0.04%, while the UK's FTSE 100 dipped 0.02%. The measured reaction suggested investors were refraining from mass liquidations despite the heightened geopolitical uncertainty.

The blockade, covering all vessel traffic regardless of flag, warns that any ship suspected of entering or leaving the blockade area without authorization is subject to interception, diversion, and seizure, with non-compliant vessels potentially facing legal action.