Global financial markets turned cautious on Tuesday as escalating tensions linked to the Iran conflict pushed oil prices sharply higher, raising fresh concerns about supply disruptions and inflationary pressure.
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Brent crude rose by around 4.5% to $99.78 per barrel, while West Texas Intermediate climbed 5.3% to $94.36, marking one of the largest single-day gains in recent weeks. The sharp increase brought benchmark crude prices close to the psychologically significant $100 level.
The rally was driven by fears of worsening geopolitical instability in the Middle East, particularly surrounding the ongoing Iran-related conflict and stalled diplomatic efforts. Investors reacted strongly to signals that a ceasefire extension may not be guaranteed, adding uncertainty to global energy markets.
Statements attributed to Donald Trump suggesting limited prospects for extending the truce further unsettled markets. Concerns also grew over whether Iran would engage in last-minute negotiations, increasing fears of prolonged disruption in oil supply routes.
The volatility quickly spilled over into equity markets. In the United States, the S&P 500 closed slightly lower, while the Nasdaq Composite saw steeper declines as investors weighed the impact of rising energy costs on inflation and economic growth.
The Dow Jones Industrial Average remained relatively stable, supported by gains in energy and defence sector stocks. A clear sector rotation trend emerged, with oil and defence companies benefiting from higher prices, while technology, consumer goods, and airline stocks came under pressure due to expectations of higher operating costs and weaker demand.
European markets also ended lower, with the STOXX Europe 600 slipping slightly. Energy and defence stocks gained, but losses in transport, industrials, and aviation sectors dragged overall performance down.
Read More: Trump, Iran signal progress amid rising tensions over Hormuz Strait
Analysts say markets will remain highly sensitive to geopolitical developments, with oil prices likely to stay volatile until clearer signals emerge on diplomacy and supply stability.