Oil rises and stocks fall as US-Iran tensions flare

London equities closed lower on Tuesday as a renewed outbreak of hostilities between the United States and Iran pushed oil prices higher and stoked inflation worries. The FTSE 100 fell 34.98 points, or 0.3%, to 10,789.28, having earlier traded as low as 10,689.55. The FTSE 250 dropped 417.5 points, or 1.7%, to 24,521.29, and the AIM all-share index closed down 15.12 points, or 1.9%, at 796.06.

Brent crude, the international benchmark for oil prices, climbed above $91 per barrel on Tuesday, extending gains from the previous session. According to City , the renewed strike action in the Middle East raised concerns about further disruptions to energy flows from the region. By the time of the London equities close, Brent for November delivery was quoted at $92.48 a barrel, up from $88.06 at Friday's close, LBC reported.

A Greek security firm reported that "unknown projectiles" struck two oil tankers in the Strait of Hormuz overnight, in a fresh flare-up in the US-Iran war, LBC said.

Renewed strikes and a response

The United States launched strikes at Iranian rocket launchers that were reportedly preparing to lay mines in the Strait of Hormuz, marking the first exchange of fire in more than a month, City M. reported. Iran responded by targeting US military bases in Jordan and the United Arab Emirates, according to the same report.

President Donald Trump suggested military action is back on the table after Iran's retaliation. "We're going to hit them hard. There will be a response," Trump told Fox News, as quoted by City M. He also branded Iran "officially a failed nation without an airforce, a navy or a currency".

The White House last week signalled that it was shelving military measures in favour of enforcing sanctions to destroy the Iranian economy, City M. noted.

Analyst views on the oil rally

Achilleas Georgolopoulos, senior market analyst at Trading Point, said fresh military operations were pushing the oil price higher, but added that the rally appeared to "lack [the] momentum" needed to push it above previous highs seen during the conflict. He said expectations for progress in the US-Oman-Iran negotiations had "clearly taken another hit".

Susannah Streeter, chief investment strategist at Wealth Club, described the mood as "unsettled", with "renewed conflict between the US and Iran keeping worries bubbling about high energy costs, inflation and debt, and the knock-on effect on growth", LBC reported.

Market moves across regions

In European equities on Tuesday, the CAC 40 in Paris closed down 0.4%, while the DAX 40 in Frankfurt ended 1.1% lower, LBC said. In New York, the Dow Jones Industrial Average was down 0.4%, the S&P 500 was 0.5% lower, and the Nasdaq Composite fell 0.7%.

The risk-off mood came amid a fresh upward move in the oil price putting pressure on global bond yields, with government bond yields soaring on the back of rising oil prices, reigniting worries over inflation.

The Strait of Hormuz dispute

Tehran has imposed an effective blockade of the strait since the US and Israel launched their war in late February, according to LBC. It says it wants to charge fees for passage and has attacked ships it accuses of attempting to circumvent its preferred route through the waterway. In response, the US has imposed a rival blockade of Iranian ports. Attacks on commercial ships in the key shipping route, which was free to transit before the war, previously led to the collapse of an April ceasefire between the US and Iran.

Corporate news: Bodycote, Capricorn Energy

In UK corporate news, Bodycote accepted a 940 pence per share offer from Veritas, while Capricorn Energy recommended a higher cash takeover offer from DNO ASA, LBC reported.