Oil Spikes Over 4% as Middle East Attacks Resume, Threatening Energy Flows Ahead of Fed Decision

A sudden resurgence in Middle East hostilities has dispatched shockwaves through global commodity markets, driving crude oil prices up by more than 4% on Wednesday as military forces intercepted a fresh round of missile strikes near critical Persian Gulf supply lanes.

The military escalations shattered a fleeting three-day pause in hostilities. According to statements from the Jordanian armed forces, national air defenses intercepted five Iranian missiles early Wednesday morning. The defensive action followed an earlier announcement by the United States military confirming it had neutralized an Iranian missile barrage aimed at American installations in the region.

The renewed clash directly threatens maritime safety along the Strait of Hormuz, a narrow maritime chokepoint through which approximately 20% of global crude petroleum traffic normally transits. Disruption along this critical artery has kept energy markets on edge since major conflict erupted in late February, continuously threatening global supply chains.

Benchmark international crude reacted immediately to the military action. Brent crude futures surged $3.71 to reach $85.79 per barrel, while West Texas Intermediate crude gained $3.78 to trade at $83.04 per barrel. The price surge unwound a brief period of market calm after energy benchmark prices had settled from two-month highs reached last week.

Higher energy costs are compounding broader inflation anxieties just as the Federal Reserve prepares to announce its latest interest rate decision on Wednesday afternoon. With headline inflation remaining stubbornly above the central bank’s 2% long-term target for five consecutive years, and the domestic unemployment rate holding steady at 4.2%, monetary authorities are widely expected to maintain benchmark interest rates at current levels during this meeting.

However, the persistence of elevated oil costs is intensifying market expectations of monetary tightening later in the year. Data from the CME FedWatch tool indicates that 76% of Wall Street market participants now anticipate the Federal Reserve will implement a rate increase at its September policy gathering.

Against this backdrop of elevated energy prices and hawkish monetary expectations, U.S. stock futures showed a split performance ahead of the opening bell. Premarket trading saw futures linked to the S&P 500 edge up by 0.2% and Nasdaq futures gain 0.3%, while Dow Jones Industrial Average futures slipped 0.3%.

Corporate earnings delivered contrasting fortunes across sectors. Shares of backup power generator manufacturer Generac jumped 4.3% in premarket trading after comfortably beating Wall Street quarterly profit projections. Generac executives noted that the company is actively expanding production capacity to address a growing backlog of orders for data center backup systems. Conversely, consumer goods conglomerate Procter & Gamble dropped over 3% after reporting flat organic sales growth for the fourth quarter, missing analyst consensus estimates of a 2% increase.

Market attention in New York remains focused on a slew of major corporate earnings scheduled for release after the closing bell, including quarterly reports from technology giants Meta, Microsoft, and Starbucks.

Across the Atlantic, European equity markets reflected cautious sentiment at midday. Germany’s DAX remained flat, while France’s CAC 40 declined 0.6%. The British FTSE 100 managed a modest gain of 0.3%.

In Asian trading, technology sector weakness triggered sharp sell-offs, particularly in South Korea. The benchmark Kospi index closed 6% lower at 5,663.24 after plunging more than 8% earlier in the session. The index, which recently traded above 9,000, has tumbled back to levels last seen in early April as investors recalibrate expectations around massive capital investments in artificial intelligence infrastructure.

The rout in Seoul was spearheaded by semiconductor manufacturer SK Hynix, whose shares plummeted 9.4% after its quarterly operating profit failed to meet consensus forecasts, despite recording a nearly sixfold increase year-over-year. Tech giant Samsung Electronics dropped 4.8%. Sector anxiety was further stoked by reports of progress in China toward developing lower-cost, advanced AI models.

Japanese equities followed the regional downward trend, with the Nikkei 225 index falling 1.5% to close at 61,434.19. Semiconductor capital equipment maker Tokyo Electron plunged 10.6%, while testing equipment supplier Lasertec Corp. dropped 8.3%.

Japanese market performance was also influenced by localized supply disruptions caused by a major earthquake in the southern Kyushu region. Shares of paper manufacturer Nippon Paper fell 2.1% following reports of severe structural damage to one of its major industrial mills located in the affected disaster zone.

Elsewhere in Asia, Taiwan’s Taiex dropped 3.8%. In contrast, Chinese mainland and Hong Kong markets managed gains, with the Shanghai Composite reversing early losses to close up 0.4% at 3,830.02, while Hong Kong’s Hang Seng index rallied 2% to 25,807.92.

Australian markets found support after government statistical releases indicated that domestic inflation remained moderate, reducing immediate pressure on the Reserve Bank of Australia to resume rate hikes. The S&P/ASX 200 index advanced 1.0% to 9,038.60, while India’s Sensex index gained 1.1%.