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Update: US Equity Indexes Slump, Crude Oil Soars as Trump Plans to Reinstate Iran Blockade, Impose 20% Toll on Hormuz Cargo
(Updates with index/price moves, analyst comments, and geopolitical news from the first paragraph.)US equity indexes fell as President Donald Trump's plan to reinstate a blockade on Iranian ships transiting the Strait of Hormuz, while proposing a toll for providing "safety and security" to cargo crossings in the chokepoint, triggered a rally in crude oil prices.The Nasdaq Composite dropped 1.6% to 25,873.18, with the Dow Jones Industrial Average down 0.3% to 52,498.64 and the S&P 500 lower by 0.8% to 7,515.34 on Monday.Technology led decliners, down 2.1% while energy topped advancers with a gain of 3.2%. Chevron (CVX) was the Dow's second-biggest gainer, up 3.3%.The CBOE Volatility Index, also known as the fear gauge, soared 14% to 17.16.The front-month global benchmark North Sea Brent surged 9.7% to $83.41 a barrel as tensions with Iran escalated when Washington and Tehran ought to be engaged in negotiations to reach a final peace agreement within the 60 days allocated for such talks as part of the June 21 interim deal. The US West Texas Intermediate soared 9.5% to $78.16 a barrel."We are reinstating the IRANIAN BLOCKADE," Trump said in a Truth Social post on Monday, following a weekend of attacks on Iran. US Central Command said it will officially resume its naval blockade of ships going to and from Iranian ports at 4 p.m. ET on Tuesday, CNN reported."The U.S.A. will be, from this point forward, known as 'THE GUARDIAN OF THE HORMUZ STRAIT,'" Trump said. The US "will be reimbursed, at the rate of 20% on all cargo shipped, for any and all costs necessary to do the job of providing safety and security to this very volatile section of the World," he added.On Sunday, the US Central Command said it completed a new wave of strikes against Tehran at multiple locations, after conducting attacks a day earlier in response to the country targeting another commercial ship transiting through the strait. Iran responded by targeting US military facilities in Jordan, Kuwait, Bahrain, Qatar, and Oman, according to local state media. Trump said the US plans to carry out additional military strikes against Iran, CNN reported."Fresh strikes by the US and Iran renewed concerns about the safe passage of oil and other key commodities through the narrow waterway," Saxo Bank said in a note. "The hostilities also risk derailing efforts to rebuild inventories, according to the [International Energy Agency], while further reducing the prospects for a diplomatic resolution."A further rise in oil prices, sustained above $80 a barrel, would create headwinds for equities, according to a note from DA Davidson.The two-year US government bond yield stood at around 4.28% on Monday, its highest in 18 months, and up from 4.06% when the Washington-Iran memorandum of understanding was signed in June, the research note said. Long-term interest rates have also moved higher, with the 10-year yield at 4.63%, up from 4.43% at the MoU announcement.US Treasury yields appear to reflect more caution on geopolitical risk and oil prices, the research note said. "The higher rates are tied to inflation and Federal Reserve Bank expectations."In precious metal markets, gold futures slumped 2.6% to $4,007.1, and silver futures sank 3.7% to $57.93 amid concerns that higher crude oil prices would prove to be inflationary.
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