This Monday could become one of those historic days, remembered for decades, always associated with the adjective "black" in its date. European stock markets open with a nearly 3% plunge. The recent hours have been marked by the price of oil, which surged over 25% to reach $116, its highest level since July 2022 (after the Russian invasion of Ukraine), driven by the US and Israel's attacks with Iran, well-founded fears of significantly limited supply due to disruptions in the Strait of Hormuz, and investor panic. A dangerous situation in the short term, unsustainable in the medium term. Capable of rewriting the world's geopolitical map, alliances, and current sanctions in a matter of weeks if energy becomes prohibitive and governments grow nervous.
If current prices hold until the market closes, it would be the largest single-day increase in the history of oil futures trading, which began in the 1980s. Interestingly, the next largest intraday increase occurred on April 2, 2020, when the Brent closed with a 21% rise after a tweet from US President Donald Trump, at the beginning of the pandemic, raised expectations of a production cut by Saudi Arabia and Russia. Washington already relaxed some existing restrictions on Russian oil last week, and more could be on the way. At this morning hour on Monday, Brent crude, the European benchmark, remains above $100 per barrel, with an increase close to 15%.
Fears of a sharp rise in inflation, a possible recession, a standstill multiply, especially sensitive in an election year in the US. With a growing climate of distrust, tariffs punishing trade, and a military escalation opening more fronts. This is currently boosting the dollar.
This weekend, Iranian refineries have been hit by Israeli missiles, engulfing Tehran in fire and smoke. Kuwait confirmed it will cut its oil production, but without providing details on the scale, and oil production in Iraq has dropped by around 70% in a few days. While Trump threatens to devastate the country, does not rule out troops on the ground, and demands "absolute surrender," Iran has defied his warnings by choosing the son of Ayatollah Jamenei as its leader.
Consequently, Asian markets have closed with wild losses, nearing 8%, and Wall Street futures anticipate immense wealth destruction. South Korea's Kospi index closed with an 8% drop; Japan's Nikkei plummeted by 7.6%, dragging down other Asian markets like Vietnam, the Philippines, or Taiwan. In China, losses were much more moderate, at 1.7% for the Hong Kong Stock Exchange, while Shanghai saw a drop of less than 1%. Significant movements were also observed in gold, silver, cryptocurrencies, aviation fuel, gas, etc. "Traffic through the Strait of Hormuz has practically come to a halt, unleashing the most severe energy crisis since the 1970s and threatening the global economy," The Wall Street Journal headlined on Sunday. "This is by far the greatest disruption in world history in terms of daily oil production," warned energy historian Daniel Yergin in his article. "If it persists for weeks, it will impact the entire global economy." European gas prices surge again on Monday's opening by 20%, adding to the 67% appreciation seen last week.
In Europe, the session continues with significant losses. The Ibex 35 opens with the largest plunge in the Old Continent, at 3%. It represents a drop of nearly 500 points, down to 16,533 points. Companies like IAG and Acerinox are experiencing 5% declines, Banco Santander is down another 4% in early trading, and Inditex falls by another 3.5%. The Paris stock market also suffers a cut of around 3%, considering the weight of luxury companies in its listing, which are also being affected by supply issues in a global business. The EuroStoxx 50 loses another 3%, while the German DAX drops by 2.5% at the beginning of this dark week for the markets.
The fear index, the US VIX, rises by 45% today alone, surpassing the 34 points, the highest peak in its listing since the tariff crisis triggered by Donald Trump in early April last year.
In early May last year, Financial Times journalist Robert Armstrong coined, in an opinion column, the Taco Theory. That is, Trump Always Chicken Out. He always chickens out, always backs down. He always retreats. He said this thinking about how he had backtracked on many of his tariff announcements when the markets, especially the debt markets, had become very nervous due to the unilateral declaration of market war. Since then, it has been widely used, but the key day to see how the president reacts will be this Monday, a day of chaos and destruction that could wipe out hundreds of billions of dollars in a few hours.
The United States went to bed on Sunday almost in a state of panic. Oil prices have nearly doubled so far this year. Just 10 days ago, they were at $60 per barrel. The US and Israel's attack on Iran caused a spike, but Trump stated on Friday that there would be "new measures to reduce pressure on oil imminently. Oil seems to have practically stabilized," he said at an event celebrating Inter Miami's 2025 league title won by Lionel Messi.
The last hours of the weekend have sparked analyses from investment banks, macro cabinets, specialists, and media, witnessing an unprecedented supply crisis in its scale. "The current supply shock is roughly the same size as the five largest previous crises combined," warned The Kobeissi Letter a few hours ago.
The Strait of Hormuz has been practically closed for a week, and the problem goes far beyond oil, up to 20 million barrels per day. More than triple the shock of the Iranian Revolution or four times higher than the Yom Kippur War or the Gulf War. It also affects gas, almost all the sulfur on the planet, which comes from oil and gas refining. It impacts fertilizers and the raw material for sulfuric acid, essential for copper extraction or cobalt used in transformers, batteries, and data center components. Not to mention soybeans or aluminum, at five-year highs.
With oil prices around $120 per barrel, Kobeissi's models indicate that if the crisis persists for 3 months, US inflation would rise to 3.7%, its highest level since September 2023, forcing the Federal Reserve, which changes presidents in May, to reverse its rate cuts. Goldman Sachs, in a note to investors, states that if the crisis is severe, with oil prices around $10 higher than now for three months, the year-on-year CPI inflation in the US would likely rise from 2.4% in January to 3% in May.
"If the oil supply shock persists, we believe that every 10% increase in oil prices should translate into a 10 basis point increase in overall inflation and a drag of 15-20 basis points on GDP growth," JP Morgan agrees. Gasoline across the US is already 46 cents more expensive per gallon than a week ago, according to the American Automobile Association (AAA), while diesel has increased by 83 cents.
"The Third Gulf War has disrupted approximately 20% of the world's oil supply for nine days and counting: more than double the previous record set during the Suez Crisis of 1956-57, which disrupted just under 10%. Compared to it, this represents the largest oil supply loss in history by a factor of two. Worse yet, unlike previous crises, there is no available spare capacity," warned Bob McNally, president of Rapidan Energy Group.