US markets suffered their worst losses in three weeks on Thursday after President Donald Trump threatened an expanded campaign of “economic warfare” against Iran. The Dow Jones Industrial Average fell 703.84 points, or 1.32 percent, while the S&P 500 lost 0.87 percent. US crude rose from $86.20 to $86.70 per barrel.
The market moves came as the Strait of Hormuz remained closed to shipping and total US government debt surpassed $40 trillion, adding to pressure from higher energy costs and concerns about inflation, borrowing and the war’s political impact.
What Trump has threatened
In a Wednesday post on Truth Social, Trump said Iran had failed to take an opportunity to make a deal and would face “economic warfare and isolation on an unprecedented scale”. He also warned that countries whose financial institutions, businesses, airports or government entities provide any type of lifeline to Iran would face what he called “TREMENDOUS Economic Consequences”.
Treasury Secretary Scott Bessent said on Thursday that the plan could include additional secondary sanctions on countries and companies doing business with Iran. Tehran rejected the threat, with Foreign Minister Abbas Araghchi describing the so-called “economic D-Day” as a diversion from what he called America’s own crisis.
Related coverage: Understanding economic trends beyond stock markets during the US-Israel war on Iran.
Oil, bonds and stocks react
Global crude prices reached nearly a one-month high after the threats. Brent crude topped $93 a barrel on Thursday and stood at $93.28 on Friday morning. US crude was trading at about $86.20 on Friday morning after Thursday’s rise.
The Dow closed at 52,759.21 and the S&P 500 at 7,641.16. US indices showed signs of stabilising on Friday morning. The 30-year US Treasury yield rose above 5.25 percent, close to a two-decade high, according to Frederic Schneider of the Middle East Council on Global Affairs. The Treasury also announced an emergency plan to double buybacks of long-dated debt to at least $4bn, but the move did not calm the market.
Why the Strait of Hormuz matters
The strait is the only route to the open ocean for Gulf oil producers’ exports. Before the war, about 130 ships passed through it each day, while roughly 20 percent of global oil and natural gas supplies moved through the waterway. Now, only a handful of ships are getting through, disrupting energy and financial markets.
The US Energy Information Administration does not expect Gulf output to recover to near pre-conflict levels until early 2027. Schneider said the resulting oil shortage was adding to American inflation and pressure in the bond market. He also said the Gulf states and East Asian economies were among the hardest hit and among the largest holders of US assets.
Political pressure and uncertain talks
The war is becoming increasingly unpopular in the United States as petrol and other living costs rise. Gasoline prices are nearly a third higher than a year ago, according to the American Automobile Association. A Reuters/Ipsos poll put Trump’s approval rating at 33 percent, matching its lowest level of his first presidency.
Trump said on Friday that paying slightly more for gasoline was worthwhile to prevent Iran from obtaining a nuclear weapon. Talks covering Iran’s nuclear capabilities have not seriously begun. Iran is negotiating with Oman over management of the strait, says it will not hold direct talks with the United States on the issue, and has set further conditions for negotiations.
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