By Tom Ozimek

Wall Street’s main indexes opened in the red on March 9 as investors reacted to a surge in oil prices and escalating tensions in the Iran war, which threatened energy supplies and rattled global financial markets.

The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all slipped at the opening bell as traders responded to rising crude prices and mounting geopolitical uncertainty.

The selloff deepened as trading continued. By around 10:15 a.m., the Dow Jones Industrial Average had fallen by about 850 points, or 1.79 percent, to 46,638.19. The S&P 500 was down 102.72 points, or 1.52 percent, at 6,637.29, while the Nasdaq Composite dropped 279.02 points, or 1.13 percent, to 24,363.99.

Investor jitters intensified amid little prospect for a quick resolution to the conflict after Tehran moved to install a hardline successor to the country’s supreme leader.

Mojtaba Khamenei, the son of the eliminated Iranian leader Ali Khamenei, has been chosen to replace his father. Mojtaba Khamenei, who has rarely appeared in public, maintains close ties with the Islamic Revolutionary Guard Corps and holds influence among senior clerics, signaling that hardliners remain firmly in control of the regime.

Hours before Iran’s announcement, President Donald Trump—who has said he will be involved in choosing Iran’s next leader—warned Tehran that if the successor installed by the regime is not approved by Washington, “he’s not going to last long.”

Oil Surge Fuels Market Anxiety

Oil prices jumped to their highest levels since mid-2022 as traders priced in the growing risk of supply disruptions across the Middle East.

Benchmark Brent crude futures were up by 12 percent at $103.93 per barrel at around 7 a.m. ET on March 9, while U.S. West Texas Intermediate (WTI) rose by 12.5 percent to $102.31.

Earlier in the session, Brent briefly surged to about $119.50 per barrel, and WTI climbed above $119 before pulling back, underscoring the extreme volatility gripping energy markets.

“Oil prices have now gathered all the ingredients for a perfect storm—Middle East Gulf producers cutting output, the prolonged closure of the Strait of Hormuz … all compounded by a growing pessimism about a quick turnaround in the current situation,” Kpler senior oil analyst Muyu Xu said.

There were no signs of de-escalation over the weekend, with conditions appearing to deteriorate further as production disruptions began to spread.

Upstream oil output has started to shut in as storage constraints emerge, with Iraq, Kuwait, and the United Arab Emirates reducing production, according to ING analysts.

Iraq has cut about 1.5 million barrels per day, while Kuwait has reduced production by up to 300,000 barrels per day, the analysts said in a March 8 note.

“The longer this goes on, the more supply we will see shut-in,” ING wrote in the note. “This is a concern for markets. Even if flows through the Strait of Hormuz start to resume, it will take time for upstream production to ramp up.

“The combination of these production shut-ins and no signs of de-escalation in the war means the market is having to aggressively price in a prolonged supply disruption.”

Shipping disruptions in the Gulf have compounded the supply shock. Saudi Arabia has begun diverting crude exports through pipelines to the Red Sea, while tanker traffic into and out of the Gulf has slowed dramatically amid Iranian threats of attacks.

Hundreds of oil tankers were reported waiting inside the Gulf and near the Strait of Hormuz, a critical chokepoint through which roughly one-fifth of the world’s oil supply normally passes.

Even if the United States deploys additional naval forces to secure shipping lanes, the route could remain unsafe, Qatari Energy Minister Saad Sherida al-Kaabi told the Financial Times in an interview published on March 6, saying transit through the strait would remain “too dangerous.”

Al-Kaabi, who is also the CEO of QatarEnergy, said that oil prices could soar to $150 a barrel within two to three weeks if tankers and other merchant vessels are unable to pass through the Strait of Hormuz.

The conflict has also begun to damage civilian infrastructure. Bahrain accused Iran of striking a desalination plant vital to drinking water supplies, while the country’s national oil company declared force majeure on shipments after an Iranian attack set its refinery complex ablaze.

Stocks Slide as Volatility Surges

Equities were already under pressure last week as rising oil prices and Treasury yields rattled investor sentiment.

By the end of last week, the Dow Jones Industrial Average fell by 3.01 percent to 47,501, while the S&P 500 dropped by 2.02 percent to 6,740, and the Nasdaq Composite declined by 1.24 percent. Small-cap stocks suffered the steepest losses, with the Russell 2000 tumbling 4.07 percent.

Market volatility surged as well, with the Cboe Volatility Index—often referred to as Wall Street’s “fear gauge”—jumping by nearly 50 percent during the week.

The latest escalation in the Middle East conflict appears to have intensified investor fears that higher energy prices could fuel inflation and slow global economic growth.

Reuters contributed to this report.