The global economy has entered a new and complex phase of geopolitical and financial uncertainty, after US President Donald Trump dropped a heavy political bombshell from the Turkish capital Ankara during his participation in the NATO summit. This came with his official and final announcement ending the war and canceling the memorandum of understanding and temporary truce signed with Tehran to end the Gulf conflict, describing any new attempts to negotiate or deal with the Iranian leadership as 'mere folly and a waste of time,' while warning that Washington may initiate serious and open military options to respond to attacks on commercial shipping.

This sudden dramatic shift, accompanied by Washington's threat to launch broad new military strikes, caused a violent logistical and financial shock to the global economy. Oil prices immediately jumped more than 7%, breaching the $79 per barrel mark, threatening to freeze two years of gains in the fight against inflation and undermining hopes for monetary policy easing.

In contrast, Wall Street indices and European and Asian markets turned red as investors fled en masse to safe havens, placing the renewed Strait of Hormuz conflict on the brink of a volcano for the entire global economy, at a time when the International Monetary Fund again warned that continued bleeding would force it to further trim global growth rates, which remain modestly at 3%.

Traders working at the New York Stock Exchange (AP)

Oil Market Ignites

Trump's sharp remarks reignited fears of a complete and prolonged closure of the global energy artery in the Strait of Hormuz, which traders immediately translated into panic buying that sent prices soaring. Brent crude extended its gains, rising 7.4% to settle at $79.64 per barrel, while US light crude West Texas Intermediate followed with an increase of nearly 7.3% to reach $75.58 per barrel.

Although these levels remain below the peak of $120 recorded at the start of the conflict, their rapid jump of between 25% and 32% compared to pre-war levels has reinjected inflation risks into bond markets.

Adding to the sensitivity of oil fears were official data released this week, which revealed that US crude inventories in the Strategic Petroleum Reserve fell to their lowest level since 1983, depriving the global economy of any maneuvering room to absorb the inevitable shocks ahead in the event of a full naval blockade.

Selling Wave Sweeps Stocks

Global stock exchanges reacted to the US military threats of night-time land and sea strikes against Iran with an immediate shudder, triggering a broad sell-off of high-risk assets. New York opened sharply lower, with the Dow Jones Industrial Average losing about 1% of its value (equivalent to 514 points), followed by the broader S&P 500 index falling 0.46% and the tech-heavy Nasdaq dropping 0.31%.

In Europe, the Paris and Frankfurt markets fell sharply by 1.8%, while London dropped 1.2%. In Asia, Seoul's KOSPI index led the declines, recording a violent drop of more than 5%.

Airlines and cruise companies were the direct victims of the sudden spike in fuel prices, with United Airlines shares falling 3.2% and Delta down 1.9%. Shares of cruise operators such as Carnival also plunged 3% due to fears of evaporating profit margins and rising operating costs.

The energy crisis coincided with increased investor skepticism about the high valuations of the semiconductor and AI sectors. Samsung Electronics shares continued their decline for the second consecutive day, falling 6% in Seoul despite reporting a massive profit jump of 19-fold, amid real concerns about slowing demand for memory chips in the second half of the year. In contrast, US chipmaker Broadcom shares rose 3%, supported by a massive $30 billion supply deal with Apple, partially offsetting losses in the tech-heavy Nasdaq.

Traders talk near screens displaying foreign exchange rates in a trading room at Hana Bank in Seoul (AP)

Yen Staggers, Dollar Seeks Safe Haven

The foreign exchange markets were not immune to this shock, as the war rhetoric realigned traders' priorities towards holding the US dollar as a safe haven in times of crisis.

The US dollar index maintained relative stability against a basket of major currencies, moving around 101.1 points, supported by expectations of keeping interest rates higher for longer to curb potential oil-driven inflation.

In contrast, the Japanese currency continued to stagger, with the yen hovering around 162.49 yen per dollar, affected by the wide gap in bond yields between Washington and Tokyo, and approaching its lowest levels in about 40 years, putting additional pressure on the Bank of Japan to intervene in the markets.

Experts and strategic analysts agreed that international markets are now completely dominated by sharp and violent fluctuations due to a 'lack of geopolitical visibility' resulting from the ongoing tactical swings in the positions of the current US administration. Analysts at financial groups believe that the greatest fear lies not in the current momentary decline in stock prices, but in the possibility of the cancellation of the truce turning into a complete diplomatic rupture that leads to a return of an open and comprehensive 'tanker war,' forcing international powers to impose a mutual naval blockade.