Oil prices climbed and U.S. stocks moved lower on Monday after the United States launched a fresh military strike against Iranian targets near the Strait of Hormuz, bringing the conflict back into focus for investors already worried about inflation and interest rates.
Brent crude rose above $90 a barrel during trading, while the S&P 500, Dow Jones Industrial Average and Nasdaq Composite all moved lower. Energy companies were among the few bright spots in the stock market as investors weighed the possibility of tighter oil supplies against the wider economic risks created by the conflict.
The latest market move comes at an uncomfortable time for the U.S. economy. Inflation is still running above the Federal Reserve’s 2% target, gasoline prices have remained unusually high, and the labor market has started showing signs of weakness.
That combination is making the Federal Reserve’s next interest-rate decisions harder to predict.
Oil Prices Move Higher as Strait of Hormuz Risk Returns
Brent crude, the international benchmark for oil prices, rose about 3.2% to around $90.91 a barrel on Monday. West Texas Intermediate crude also moved higher as traders reacted to the latest military developments.
The Strait of Hormuz is at the center of the market’s concern.
The narrow waterway is one of the world’s most important oil shipping routes. Roughly one-fifth of global oil shipments pass through the area, making any serious disruption potentially important for energy markets around the world.
U.S. forces struck Iranian rocket launchers near the Strait of Hormuz on Sunday. The United Arab Emirates also reported intercepting an Iranian drone over its waters on Monday.
For oil traders, the issue is not simply the military action itself. The bigger question is whether the fighting will interfere further with commercial shipping.
Oil prices had already experienced large swings during the conflict. Brent traded between roughly $72 and $102 a barrel last month as investors moved between hopes for a diplomatic agreement and fears that the war could worsen.
The latest escalation has pushed some of that risk back into crude prices.
Wall Street Starts the Week Under Pressure
U.S. stocks fell as investors assessed the potential economic impact of higher energy prices.
The S&P 500 was down about 0.4% in morning trading. The Dow Jones Industrial Average fell roughly 348 points, or 0.7%, while the Nasdaq declined around 0.3%.
The selling was relatively broad, with most sectors inside the S&P 500 moving lower.
Energy stocks were different.
Exxon Mobil gained about 2.9%, while Chevron rose around 3%. Higher crude prices can improve revenue expectations for major oil producers, particularly if the increase lasts for an extended period.
The reaction highlights the unusual way an oil shock can affect the stock market.
Oil companies can benefit from higher crude prices at the same time that airlines, manufacturers, transportation companies and consumers feel the squeeze.
If fuel remains expensive, businesses may have to spend more simply to operate. Some companies can pass those costs to customers, but others may have to accept lower profit margins.
Investors therefore have to consider both sides of the oil-price move.
Why Investors Are Worried About Inflation
The biggest financial concern is not necessarily Monday’s decline in the major stock indexes.
It is what happens if oil stays expensive.
Higher crude prices eventually affect much more than gasoline. Transportation costs, shipping expenses, manufacturing and some consumer goods can all become more expensive when energy prices remain elevated.
The United States was already dealing with inflation above the Federal Reserve’s 2% target.
That leaves policymakers with a difficult choice.
If energy prices push inflation higher, the central bank could have less room to lower interest rates. If inflation becomes persistent, officials could even face pressure to raise rates.
But higher rates can slow economic activity.
That matters because the labor market has recently shown signs of cooling.
The latest data showed employers unexpectedly cut 23,000 jobs in July. Revisions to May and June payroll figures also removed another 103,000 jobs from previous estimates.
So the Fed is facing two problems at once.
Inflation is still too high, while employment growth is losing some momentum.
An oil shock can make that situation even more complicated.
Fed Rate Expectations Are Changing
Investors have been paying close attention to comments from Federal Reserve Chair Kevin Warsh as they try to figure out what the central bank might do next.
Market expectations for a September rate increase have risen significantly. Reuters reported that the probability of a September hike had moved above 60%, compared with roughly 41% a week earlier.
That shift is important because interest-rate expectations can quickly affect stocks, bonds and currencies.
Investors had previously hoped that cooling economic conditions could give the Fed more room to ease monetary policy.
Higher oil prices complicate that argument.
If energy costs continue climbing, inflation could remain elevated even while economic growth slows.
For investors trying to understand the possible path of U.S. interest rates, our guide to Fed Rate Hike Expectations for September 2026 provides additional context on the changing market outlook.
The Federal Reserve’s own policy decisions and economic projections will remain particularly important as the market waits for upcoming inflation and employment figures.
Treasury Yields Rise as Markets Reprice Rate Risk
The bond market also reflected the changing outlook.
The yield on the 10-year U.S. Treasury rose to around 4.76% on Monday, up from 4.73% at the end of Friday’s trading session.
The two-year Treasury yield, which tends to respond more directly to expectations for Federal Reserve policy, remained around 4.34%.
Both figures are important for investors.
When Treasury yields rise, borrowing costs across the economy can move higher as well. Mortgage rates, corporate financing and other forms of borrowing can all be affected.
Higher yields can also make stocks less attractive compared with bonds, particularly when investors are already concerned about economic growth.
We’ve previously looked at this relationship in more detail in Rising Bond Yields Pressure Stocks and the Economy.
The current market environment makes that relationship particularly relevant.
If oil prices continue rising and investors expect the Fed to keep rates high, Treasury yields could remain under pressure.
Gasoline Prices Add to Consumer Pressure
American drivers are already dealing with elevated fuel costs.
According to AAA data cited by AP, the national average gasoline price stayed above $4 per gallon throughout August. That made this year’s August the most expensive on record at the pump, according to the report.
A prolonged period of expensive gasoline can affect the economy in ways that are easy to overlook.
A household spending more on fuel has less money available for other purchases. That can eventually hurt restaurants, retailers, travel companies and entertainment businesses.
The effect can be especially noticeable when consumers are already dealing with higher prices elsewhere.
For businesses, expensive fuel can create another problem.
Companies that depend heavily on transportation may see their costs increase. Delivery companies, airlines and manufacturers can be particularly exposed to energy-price increases.
If those businesses raise prices to protect their margins, the original oil shock can spread into other parts of the economy.
That is exactly the type of second-round inflation effect central banks try to avoid.
Energy Stocks Stand Out
While most of Wall Street moved lower Monday, oil companies benefited from the jump in crude prices.
Exxon Mobil and Chevron were among the notable gainers.
The reason is straightforward. If crude remains expensive, oil producers can potentially generate more revenue from each barrel they sell.
But investors should not assume every energy-related company benefits equally.
Refiners, airlines, transportation businesses and other companies can face higher costs when crude prices rise.
The effect depends heavily on each company’s business model.
For large oil producers, however, a sustained supply shock can provide a significant earnings tailwind.
That explains why energy stocks often behave differently from the broader market during periods of geopolitical tension.
Not Every Stock Move Was About Iran
Monday’s market was being driven by geopolitical news, but company-specific developments were still moving individual stocks.
GameStop shares rose about 4.2% after the video game retailer released a preliminary second-quarter earnings outlook that was above its year-ago results.
Aon shares, meanwhile, dropped around 5.8% after the company announced an agreement to acquire insurance broker USI Insurance Services from private-equity firm KKR.
The transaction was valued at approximately $17 billion, including debt.
These moves show why investors should be careful about treating every stock-market movement as a direct reaction to oil prices.
Major indexes can fall because of geopolitical concerns while individual companies rise or fall for completely different reasons.
Earnings expectations, acquisitions, guidance and company-specific news can continue to create large moves even during a broader market selloff.
Global Markets Are Watching the Same Risk
The uncertainty was not limited to the United States.
European and Asian markets were mixed as investors considered the latest developments in the Middle East alongside interest-rate concerns.
International markets can react differently depending on their exposure to energy imports and exports.
Countries that produce large amounts of oil may benefit from higher prices through increased energy revenues.
Oil-importing economies face a different situation.
Higher crude prices can increase their import bills and put additional pressure on domestic inflation.
Currency movements can add another layer to the problem.
If U.S. interest rates stay higher for longer, the dollar can receive support from investors seeking relatively attractive U.S. yields. A stronger dollar can then make dollar-priced commodities such as oil more expensive for buyers using other currencies.
This creates a complicated chain connecting the Middle East, oil markets, currencies, bonds and stocks.
The Jobs Report Could Become Crucial
Investors will not be watching oil alone this week.
The U.S. government is scheduled to release August employment data, giving markets another major piece of information about the health of the economy.
The July jobs report was unexpectedly weak, with employers cutting 23,000 jobs. Earlier employment figures were also revised lower.
The upcoming report could therefore have a major influence on interest-rate expectations.
A weak jobs report could strengthen the argument for caution from the Federal Reserve.
A stronger report, combined with elevated inflation, could give policymakers more reason to keep monetary policy tight.
The result could be particularly important if oil prices remain above $90.
Investors will essentially be trying to answer two questions at the same time:
Is inflation getting worse?
And is the labor market getting weaker?
The answers will help determine how the Fed approaches its next decisions.
What Could Happen to Oil Next?
The direction of crude prices will depend heavily on what happens around the Strait of Hormuz.
If military tensions ease and commercial shipping continues with limited disruption, some of the geopolitical premium could disappear from oil.
That could bring prices back down.
But a more serious disruption would create a very different situation.
If tanker traffic is restricted further, traders could push crude prices significantly higher as they reassess available supply.
The market does not need an actual global shortage before prices react.
Expectations can be enough.
That is why oil can move sharply when investors believe a supply disruption is becoming more likely.
For consumers and businesses, however, the key issue is whether the increase lasts.
A short-lived jump in crude prices is easier for the economy to absorb.
A sustained increase can become much more damaging because companies and households have less ability to avoid higher energy costs over time.
What Investors Should Watch Now
Several market indicators could become particularly important over the coming days.
Brent crude: A sustained move above $90 would indicate that geopolitical risk remains firmly priced into the oil market.
WTI crude: U.S. oil prices will provide another indication of how traders view domestic and global supply risks.
10-year Treasury yield: Further increases could put pressure on borrowing costs and stock valuations.
Two-year Treasury yield: This remains a useful indicator of changing expectations for Federal Reserve policy.
Gasoline prices: Higher pump prices could eventually affect consumer spending.
August employment report: The data could shift expectations for the Fed’s next move.
Inflation readings: Investors will want to know whether higher energy costs are spreading into broader prices.
Strait of Hormuz shipping: Any meaningful disruption could have a much larger impact on oil markets.
The Bottom Line
The latest rise in oil prices is a reminder of how quickly geopolitical events can move through financial markets.
The U.S. strikes near the Strait of Hormuz pushed fresh supply concerns into crude markets, sending Brent back above $90 a barrel. At the same time, major U.S. stock indexes moved lower as investors considered the possible consequences for inflation, interest rates and economic growth.
Energy companies benefited from the jump in crude prices, while much of the wider market struggled.
The bigger story, however, is likely to be what happens next.
If the conflict cools and oil shipments continue normally, Monday’s oil-price jump could prove temporary. If tensions increase and shipping through the Strait of Hormuz becomes more difficult, the financial impact could become considerably larger.
For the Federal Reserve, higher oil prices arrive at an awkward moment. Inflation remains above target while the labor market has started showing signs of weakness. Higher energy costs could make inflation harder to control just as policymakers are trying to assess whether the economy can handle restrictive interest rates.
That leaves investors watching three things especially closely: oil prices, Federal Reserve policy and the U.S. jobs market.
For now, the message from Wall Street is cautious. The market is not only reacting to today’s military developments. It is trying to price what those developments could mean for the cost of energy, the path of interest rates and the health of the U.S. economy in the months ahead.