Stocks steadily gained momentum on Monday despite the start of a U.S. military blockade of Iranian ports and the Strait of Hormuz.
While weekend negotiations between the U.S. and Iran failed to yield an agreement, Mark Luschini, chief investment strategist at Janney Montgomery Scott, told CBS News that investors assume the sides will soon find an off-ramp and avoid further escalation.
“I think investors realize that this is probably a little bit more brinkmanship than necessarily the start of a significant re-escalation of the war, given the fact that we’re still theoretically in the midst of this two-week ceasefire in which negotiations still have a chance of coming back together,” he said.
Stocks rebounded after opening in the red. The S&P 500 rose 31 points, or 0.4%, to 6,848 in afternoon trading. The Dow Jones Industrial Average added 71 points, or 0.1%, while the tech-heavy Nasdaq Composite gained 0.6%.
The price of Brent crude, the international benchmark, was up 6%, or $5.71, to $100.91 a barrel by midday Monday, while West Texas Intermediate, the U.S. benchmark, was up 4.6%, or $4.43, to $101 a barrel, according to Oilprice.com.
“We assume that the Strait of Hormuz will remain effectively closed until the end of April,” Ben May, director of global macro research at Oxford Economics, said in a note to clients. “Traffic levels then rise to around 50% in May and June, before gradually recovering to normality over the following six months.”
Blockade begins
Mr. Trump said the U.S. blockade of Iran’s ports will begin at 10 a.m. ET Monday, an announcement that came after the failure of negotiations in Islamabad over the weekend to reach a peace agreement in the U.S.-Iran war.
Because Iran exports much of its oil to China, the move to block its ships from leaving the strait could be designed to put increased pressure on Tehran as well as convince Beijing to play “a more active role in mediating a ceasefire,” Capital Economics group chief economist Neil Shearing said in a research note.
“In practice, however, [the blockade] risks creating new potential flashpoints,” Shearing said. “Would the U.S. Navy seize allied ships that have paid tolls to Tehran? Would it target Chinese vessels in the Strait? Either outcome would represent a significant escalation.”
Oil prices have been rising as shipping through the strait has essentially stalled since late February. Brent crude has climbed from roughly $70 per barrel before the war in late February to more than $119 at times. That, in turn, has pushed U.S. gas prices above $4 a gallon, pinching household budgets.
The declines in equity markets Monday morning weren’t as steep as some had projected following the failed negotiations over the weekend, said Adam Crisafulli, an analyst with Vital Knowledge, in a research note before the opening bell.
“The Hormuz blockade in reality isn’t as draconian as it initially appeared — the U.S. Navy is focused on interdicting ships traveling to/from Iranian ports, not all vessels moving through the waterway,” Crisafulli said.
U.S. Central Command said the U.S. Navy won’t stop vessels heading through the strait to and from non-Iranian ports.
Traffic in the Strait of Hormuz, through which about 20% of the world’s energy supplies are shipped, has been significantly curtailed since the war began in late February. In April, an average of about 10 ships passed through the Strait each day, far below the roughly 129 ships that traveled through the waterway in the month before the war, marine transit data shows.
