U.S. stock futures pointed to a risk-off trade Sunday evening as investors reacted to the U.S.-Israeli bombardment of Iran over the weekend.
Futures tied to the Dow Jones industrial average tumbled 368 points, or 0.72%. S&P 500 futures were down 0.53%, and Nasdaq futures lost 0.54%.
But the bigger risk centers on the potential for Iran to close off the Strait of Hormuz, where a fifth of all the world’s oil passes through on the way to export markets. Analysts have estimated that any Iranian moves to close off the strait could send prices to $100 per barrel.
The Islamic Revolutionary Guards Corps has reportedly warned ships that passage is not allowed in the strait, and said Sunday that it struck three oil tankers with missiles. But even before that, fear of such attacks froze ship traffic.
In addition, Greece’s shipping ministry has advised vessels to avoid the Persian Gulf, the Gulf of Oman and the Strait of Hormuz. And shipping giant Maersk said it is suspending all vessel crossings through the strait until further notice.
Closure of the strait would hit Asia the hardest, since most economies in the region are major oil importers whose supply routes depend on those lanes being open, according to Idanna Appio, a portfolio manager and senior analyst covering sovereign debt and foreign exchanges.
Alan Gelder, senior VP of refining, chemicals and oil markets at Wood Mackenzie, estimated it could take a few weeks for export flows to resume, even in the most optimistic scenario where Tehran cooperates with the U.S.
But until then, the outlook on prices has a heavy upside risk, he added in a note, drawing a comparison with the immediate aftermath of Russia’s invasion of Ukraine in 2022, when oil hit $125 a barrel.
“There is, however, a risk that the OPEC+ decision is moot if flows do not resume through the Strait of Hormuz,” Gelder said.
Gold rose 2% to $5,353 per ounce, and silver climbed 1.9% to $95.06. The yield on the 10-year Treasury was flat at 3.964%. The U.S. dollar was up 0.28% against the euro and was up 0.28% against the yen.
“I don’t think this feels like a liquidity type event,” she told Fortune.
As for sovereign risk in the Gulf, Iran has targeted Bahrain, Qatar, and the UAE with missiles and drones. The situation weighs on regional risk on the margins, but most of those sovereigns carry strong balance sheets, Appio explained.
If anything, it might signal a buying opportunity for investors rather than structural deterioration. The longer-term question is whether this current conflict resolves in a way that reduces regional risk, but she said that’s a scenario for the future and not necessarily the week ahead.
Investors will also look ahead to a busy week for economic indicators. On Monday, the Institute for Supply Management will release its monthly manufacturing activity index. On Wednesday, ADP will publish its monthly data in private-sector payrolls, and the Federal Reserve will put out its beige book report on regional business and economic conditions. On Thursday, fourth-quarter productivity data comes out. And on Friday, the Labor Department will issue its monthly jobs report.
