Iran conflict latest: IEA warns of "very severe" oil crisis sparked by war

Investing.com - The Iran war showed few signs of waning on Monday, with media reports saying Tehran had been hit by fresh barrages that caused blackouts in parts of the Iranian capital.

Israel, whose joint campaign with the U.S. is now its fourth week, said that it would target infrastructure in Iran, although few other details were provided, the New York Times reported.

Crucially for financial markets, worries persisted over a prolonged closure to the Strait of Hormuz, a narrow waterway south of Iran through which roughly a fifth of the world’s oil passes. The strait has remained effectively closed to tanker traffic for fear of Iranian attacks on vessels, crimping global supplies and driving up energy prices around the world.

Beyond the strait, at least 40 energy assets across the Middle East have been severely damaged by the fighting, the Wall Street Journal reported.

Concerns have abounded that the energy shock will spark inflationary pressures, weighing on economic activity and leading central banks to consider more hawkish policy stances. The International Energy Agency’s executive director warned that oil price jump represents a “very severe” crisis, and worse than prior shocks in the 1970s.

U.S. President Donald Trump, who is himself under increasing domestic pressure over the war, has given Iran until Monday night to reopen the strait or face air strikes on the country’s power plants. Tehran has rebuffed the ultimatum, saying the strait will stay “completely closed” should these sites be hit.

While Trump has suggested that the U.S. could “obliterate” various power facilities in Iran, he has claimed the U.S. has already “won” the conflict and could be nearing a “winding down” of its campaign.

“Trump isn’t wrong when he says, ‘we’ve won,’ and this, along with the metastasizing economic fallout from the war and Congressional pushback to a [roughly] $200 [billion] supplemental funding request, is why he seems to be steering toward an exit ramp (or at least he has the blinker on and is preparing to turn),” analysts at Vital Knowledge wrote in a note.

“However, the Pentagon does not have complete control of the situation and Iran, despite being substantially degraded, still possesses a powerful retaliatory toolkit focused on targeting the Middle East’s critical shipping lanes[.]”

Oil prices continued to march on Monday, while U.S. Treasury yields climbed. Stocks in Asia and Europe fell, as did U.S. equity-market futures. Gold has also declined, weighed down in part by a firmer U.S. dollar.

(This is a developing story. Please check back later for updates.)