Oil Prices Surge, Stocks Fall After US Hits Iran in Hormuz

Oil prices rose 2.8% and U.S. stocks fell on Monday after American forces struck Iranian rocket launchers on Larak Island in the Strait of Hormuz, marking the first U.S. military action against Iran in a month. The renewed hostilities in one of the world’s most critical shipping lanes reignited concerns about global oil supply disruptions and added fresh pressure to an already complicated inflation picture for the Federal Reserve.

According to AP News, the S&P 500 fell 0.4%, the Dow Jones Industrial Average dropped 305 points (0.6%), and the Nasdaq declined 0.3%. Energy stocks bucked the broader trend, with Exxon Mobil rising 1.5% and Chevron gaining 1.4% as Brent crude, the international benchmark, climbed to $90.58 per barrel.

Renewed Hostilities in the Strait

U.S. forces struck Iranian rocket launchers on Larak Island on Sunday after observing Revolutionary Guard Corps personnel preparing to launch rockets carrying sea mines into the strait, according to Tim Hawkins, a spokesperson for U.S. Central Command. The strike came just days after the U.S. military completed clearing sea mines from the strait’s international shipping routes.

“In essence, Iran created the threat and the U.S. military eliminated it to protect civilian mariners, commercial shipping, and the free flow of global commerce,” U.S. Central Command said in a statement.

Iran retaliated by launching ballistic missiles at U.S. bases in Jordan, with Jordan’s armed forces intercepting eight missiles. The United Arab Emirates separately reported intercepting an Iranian drone over its waters on Monday. Gen. Hossein Mohebi, an IRGC spokesperson, called Sunday’s attack a “fatal mistake by the Trump regime during the economic war” and vowed that the enemy “will pay the consequences militarily and economically.”

The exchange comes as the U.S.-Iran war reaches its six-month mark, a conflict that has already cost the United States more than $37.5 billion and claimed the lives of 18 U.S. service members. Iranian officials say the country has suffered $270 billion in direct and indirect damage.

The Strait of Hormuz’s Global Significance

The Strait of Hormuz is a maritime chokepoint through which about 20% of the world’s oil shipments normally pass. Before the war began on February 28, roughly 130 vessels transited the strait daily. Now, only about 24 vessels pass through per week, according to Trump administration officials. The closure has become the largest disruption to world energy supply since the 1970s energy crisis.

The U.S. military has redirected 83 commercial vessels and disabled three under its blockade of Iranian ports. The Strategic Petroleum Reserve, meanwhile, sits at its lowest level since 1982, holding just 289.7 million barrels, limiting Washington’s ability to calm jittery markets.

For American consumers, the war’s toll is visible at the pump. The national average for gasoline in August has been above $4 per gallon every day of the month for the first time ever, according to AAA, making it the most expensive August on record.

Fed Policy Complicates the Picture

The war has fueled already stubbornly high inflation, which remains above 3% — well beyond the Fed’s 2% target. On Friday, Fed Chair Kevin Warsh said inflation is still too high and suggested a rate hike might be necessary in the coming months. Wall Street is now forecasting a 66% chance of a rate hike at the Fed’s September meeting, according to CME FedWatch.

“While a September hike is not a foregone conclusion, we expect the Fed to have limited tolerance for meaningful upside inflation surprises,” wrote Brock Weimer, investment strategy analyst at Edward Jones, in a research note.

The two-year Treasury yield, which closely tracks expectations about Fed moves, rose to 4.35%, while the 10-year yield climbed to 4.76%. The next inflation update arrives on September 11, just days before the Fed’s policy meeting.

“Hormuz is once again threatening to put a floor under oil just as Warsh is putting a ceiling on how much inflation patience markets should assume from the Fed,” said Stephen Innes of Quintex Intel, as reported by Euronews.

Market Pressures Mount

The jobs market adds another layer of complexity. August jobs data is due later this week, following a July report that showed employers cut 23,000 jobs, with Labor Department revisions slashing another 103,000 jobs from May and June payrolls. Any rate increase intended to cool inflation also risks further weakening the labor market.

Elsewhere in the market, Edison International slumped 22.8% and PG&E fell 19.9% following reports about potential California wildfire legislation that would allow insurers to sue utilities over related claims. GameStop jumped 4.4% after providing a preliminary second-quarter earnings outlook above year-ago results, while Aon fell 7.1% after announcing a $17 billion deal to acquire USI Insurance Services.

Economic Pressure Strategy Under Strain

The renewed military action complicates the Trump administration’s stated shift toward economic pressure rather than military force. Treasury Secretary Scott Bessent has been leading “Operation Economic Outcast,” a sanctions campaign threatening to punish any country or entity that continues to conduct business with Tehran.

“I would think that they are lashing out kinetically because they are losing economically,” Bessent said Monday at a G20 finance ministers meeting in Asheville, North Carolina.

But analysts question whether the strategy will produce the desired outcome. “This administration has completely underestimated the Iranian resolve,” said Aarathi Krishnan, a geopolitical risk analyst at RAKSHA Intelligence Future, as reported by Al Jazeera. “This is not new to the Iranian regime.”

Richard Goldberg, a former NSC senior adviser on Iran now at the Foundation for Defense of Democracies, argues for an even more aggressive approach: “What we should be seeing is an attempt to seal off every escape hatch the regime has left. Use the economic power of the United States to layer a naval blockade with an air and land embargo while dropping the hammer on anyone who gives the regime access to hard currency — whether that’s in the Middle East, China or even Europe.”

What to Watch Next

The immediate question is whether Sunday’s strike represents an isolated action or the beginning of another phase of escalation. Iran has vowed retaliation, and the IRGC has not specified the timing or scale of any response.

For markets, the key indicators will be oil price movements, tanker traffic through the strait, and shipping insurance costs. As CNBC has reported, shipping traffic through the strait has already dwindled to a fraction of pre-war levels, and any further disruption could push oil prices significantly higher.

With the Fed’s September meeting approaching, the convergence of geopolitical risk, elevated inflation, and a weakening jobs market creates a volatile backdrop for investors. As BofA Global Research noted: “Absent a material downside surprise, the onus is now on Warsh to deliver a September hike. Otherwise, he risks undermining some of the credibility he gained on Friday.”

The coming weeks will test whether the administration’s economic pressure campaign can succeed where military action has not — and whether markets can absorb another shock to global energy supplies.