The FTSE 100 dipped on Tuesday as oil prices rose amid growing tension in the Middle East after Donald Trump announced blockades on Iranian ports and threatened 20% tolls on ships passing through the Strait of Hormuz.
These tolls may be viewed as protection fees, but the bottom line is there’s no guarantee that they will ensure safe passage, and the Strait of Hormuz effectively remains out of action if the US and Iran continue military action.
From a market’s perspective, this means a heightened chance of interest rate hikes. Brent Crude rose 4% to trade above $86 while WTI jumped 3% to above $80.
“Stasis has taken over markets as investors wait for the latest twist in the Iran conflict and brace for higher energy prices to filter through to economies. Brent crude has surged even higher, topping $84 a barrel, while European gas prices have shot up to levels not seen in three months,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
“The Strait of Hormuz is once again a dangerous flashpoint and fast becoming a highly expensive one. For weeks, speculation has swirled about Iran imposing tolls, and now the US has jumped into the fray, demanding hefty payments from nations using the Strait.
“President Trump has called for a 20% reimbursement on cargoes transiting the waterway, although he did not specify whether this would be based on the value of the cargo, shipping costs or another measure, leaving big questions over how such a levy could be implemented.”
The combination of uncertainty around how these fees will work, if they will work, and the looming threat of inflation and higher interest rates hit UK stocks on Tuesday, with the FTSE 100 down 0.5% at the time of writing.
BP, along with Shell and several other commodity companies, provided some support for the index. However, this wasn’t enough to offset losses elsewhere.
Around 75% of the FTSE 100 was trading in the red at the time of writing. It was a familiar story at the bottom of the leaderboard, with housebuilders, consumer-facing, and AI-related stocks among the hardest hit.
The flare-up in Middle East tensions hit InterContinental Hotels, which were down 3.8% at the time of writing. Pearson and Melrose were down between 2%-3%.
Housebuilders Persimmon and Barratt felt the pressure of higher oil prices and lost around 2% each.