NEW YORK - US equities joined a global equity rout on Tuesday due to surging oil prices, but cut their losses after President Donald Trump announced steps to safeguard commerce in the Strait of Hormuz.
The waterway, which accounts for the transport of about one-fifth of global crude supplies, has been mostly devoid of traffic since the United States and Israel launched military attacks on Iran on Saturday.
Crude prices continued to surge early Tuesday, with Brent futures topping $85 a barrel for the first time since July 2024 amid talk of $100 oil due to a lengthy outage of Strait of Hormuz activity.
But Brent instead finished at $81.40 per barrel, still up 4.7 percent, after Trump announced that the US navy would escort oil tankers through the Strait of Hormuz if needed, and ordered Washington to provide insurance for shipping.
Earlier, European markets endured a bruising session. London fell 2.8 percent but both Frankfurt and Paris dropped by more than three percent.
Data showed an unexpected rise in eurozone core inflation, adding to concerns.
The European Central Bank's chief economist Philip Lane said in an interview with the Financial Times published Tuesday that a lengthy Middle East conflict could trigger a "spike" in eurozone inflation and hit regional growth.
The Dutch TTF natural gas contract, considered the European benchmark, shot up more than 40 percent to over 60 euros Tuesday -- its highest level since January 2023, in the wake of the price spike triggered by the Ukraine war.
European natural gas prices had surged 50 percent on Monday after Qatar's state-run energy firm said it had halted liquefied natural gas production due to strikes.
On Tuesday, US and Israeli strikes pummeled targets across Tehran.
Drones and missiles crashed into oil facilities and US diplomatic missions in the Gulf as the Islamic republic retaliated, and Israel pushed troops deeper into Lebanon to battle the Tehran-backed militia Hezbollah after it entered the fray.
The rise in energy costs could give most central bankers a headache as they look to bring down inflation while also cutting interest rates to support their economies.
Capital Economics economists Jennifer McKeown and William Jackson said the US Federal Reserve, ECB and Asian central banks would likely delay interest rate cuts.
But the Bank of England and central banks in parts of Latin America and Central Europe could be forced to hike rates.
The dollar, seen as a safer bet in times of economic unrest, extended gains against major rivals.
Asian equities extended Monday's losses.