Dow plunges as Middle East fighting lifts oil prices

Fresh fighting in the Middle East jolted Wall Street and oil markets at the same time, a combination that quickly fed through to investor sentiment. The Dow fell more than 600 points, the S&P 500 snapped a nine-day winning streak and the Nasdaq also declined as traders marked up the risk that higher crude prices could spread into gasoline, shipping and broader inflation.

The immediate trigger was a renewed flare-up in Gulf hostilities. Reuters reported that an Iranian missile attack damaged Kuwait’s airport, U.S. military strikes took place near the Strait of Hormuz, and U.S. Central Command said several ballistic missiles aimed at Bahrain were intercepted. With talks between Tehran and Washington showing little progress, oil prices rose about 2%, leaving Brent crude at $97.81 a barrel and West Texas Intermediate at $96.02.

That move in energy helped power the rest of the market selloff. Higher oil prices tend to raise input costs for airlines, manufacturers and transport firms first, then work their way into household budgets through gasoline and freight charges. On the same day, rising Treasury yields added to the pressure on stocks, reinforcing a cautious tone that had been building as investors tried to judge whether the latest violence was a passing shock or the start of a deeper inflation problem.

The policy backdrop gave that worry more weight. The Federal Reserve’s June 3 Beige Book said inflation was rising across much of the country, driven primarily by the war in the Middle East and higher energy prices. That language underscored how quickly a regional security crisis can become a macroeconomic problem in the United States, where energy still acts as a transmission channel from geopolitics to consumer prices.

The broader market now faces a simple question: will crude stabilize, or will it keep climbing if disruptions threaten the Strait of Hormuz, one of the world’s most important oil routes? The World Bank said in its April Commodity Markets Outlook that Brent could average as high as $115 a barrel in 2026 if disruptions worsened, though its baseline assumed shipping through the strait would gradually return to pre-war levels by late 2026. For now, the latest surge looks like a warning shot, but if the fighting intensifies, investors may have to price in a more durable inflation risk rather than a brief geopolitical wobble.