Oil surges to 6-week high on US-Iran tensions; stocks await Big Tech earnings

Oil climbed to its highest price in six weeks on Wednesday, driven by fresh military strikes between the United States and Iran that have once again put critical shipping lanes at risk. Brent crude rose 2.7 percent to $93.40 a barrel, a level not reached since early June, as the fragile pause between the two nations collapsed earlier in the month. The escalation has reignited concerns about energy flows through the Strait of Hormuz, the narrow waterway that funnels roughly a quarter of the world's oil and gas to global markets.

The broader conflict has now stretched nearly five months, depleting global oil reserves and feeding inflation worldwide. On Wednesday alone, President Donald Trump threatened additional strikes on Iranian infrastructure. Meanwhile, Yemen's Houthi forces, aligned with Iran, have threatened attacks on shipping in the Red Sea's Bab el-Mandeb strait, another critical artery for energy transport. The threats proved immediate: four Saudi oil tankers carrying crude to Asia reversed course in the Bab el-Mandeb following the Houthi warning.

The whipsaw in market sentiment has been sharp. Kevin Thozet, an investment committee member at Carmignac, captured the mood: two weeks ago, traders were betting oil would fall back to $60 or $70 a barrel. Now, with Hormuz effectively closed again, the conversation has flipped to predictions of $120 oil. If both Hormuz and Bab el-Mandeb were to shut down simultaneously, more than a quarter of the world's oil-and-gas supply would be cut off from its destinations. Analysts note that the U.S. military, stretched thin since the war began in late February, has not yet managed to reopen Hormuz on its own.

The economic consequences could be severe. Indermit Gill, the World Bank's chief economist, told Reuters that escalating hostilities risk reigniting inflation, pushing interest rates higher, and dragging global growth down to as low as 1.3 percent, a sharp drop from 2.9 percent last year. On Wall Street, stocks showed little reaction to the oil surge. The Dow Jones Industrial Average edged up 0.3 percent, the S&P 500 added 0.1 percent, and the Nasdaq Composite dipped about 0.1 percent, weighed down by weakness in chip stocks.

Investors were largely in a holding pattern ahead of major earnings announcements due after Wednesday's close. Alphabet faces heightened scrutiny over delays in launching a key artificial intelligence model, while Tesla is widely expected to report its first quarterly cash burn in more than two years. Chip stocks that have anchored the year's AI-driven rally showed mixed movement: Micron Technology gained 0.3 percent and Nvidia rose 3.2 percent, though major cloud computing companies have faced pressure in recent months as investors worry about the mounting costs of infrastructure spending.

John Plassard, head of investment strategy at Cité Gestion, flagged the deeper concern: any doubt about whether artificial intelligence can actually be monetized, or whether the massive spending on AI infrastructure will generate returns, could undermine the main engine of the market's nearly two-year rally. Uncertainty also came from the Trump administration's tariff announcements. The president said all generic drugs imported into the United States will face a 100 percent tariff starting in August 2028, rising to 200 percent the year after. Earlier in the week, the administration imposed a 50 percent tariff on some Canadian goods.

Currency markets added another layer of volatility. The Japanese yen found some stability at 163 per dollar after hitting a 40-year low on Tuesday. Japanese Finance Minister Satsuki Katayama said the government stands ready to take decisive action in currency markets if needed, though she avoided commenting on specific exchange-rate targets. The dollar itself dipped from a one-week high after four consecutive days of gains.

Central banks face a complicated backdrop as they prepare to announce policy decisions. The European Central Bank is expected to set rates on Thursday, with the Federal Reserve's decision due the following week. Both are expected to hold borrowing costs steady this month, but market data compiled by LSEG shows traders are pricing in at least 25 basis points of rate increases in both the United States and the euro zone by year's end. The yield on the 10-year Treasury note ticked up 1.4 basis points to 4.64 percent after touching a two-month high the previous day. The Treasury was scheduled to auction $13 billion in 20-year bonds later Wednesday.