US Stock Futures Drop as Oil Spike Boosts Inflation Fears

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(Bloomberg) — US stocks are poised to extend a selloff after the biggest weekly drop since October, as the prospect of a prolonged war in Iran sent energy prices soaring and stoked fears over inflation.

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S&P 500 Index futures dropped 1.1% as of 7:44 a.m. Monday in New York, while contracts on the Nasdaq 100 declined 1.1%. Brent crude soared 13% to $104 a barrel as Saudi Arabia, the world’s largest oil exporter, started to reduce oil production. The move by the kingdom follows the United Arab Emirates, Kuwait and Iraq.

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“Stagflation fears are hitting global markets as they are having trouble forecasting the length and intensity of oil and gas interruptions,” said Dec Mullarkey, managing director at SLC Management. “The stress and volatility is unlikely to recede until there is some visibility on an end game or at a minimum, safe shipping.”

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War causing a sustained increase in energy prices is a big concern for investors as it feeds inflation and clouds the interest-rate cut outlook. The Cboe Volatility Index — the so-called fear gauge for Wall Street — rose above 30 to the highest since April.

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“Absent a solution over the next few weeks, Gulf inventories will hit capacity forcing more facility shutdowns,” Mullarkey added. “Which takes time to restart. At that stage prices would likely jump to the $120 to $140 range.”

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Meanwhile, short positions in US exchange-traded funds rose by 8.3% last week, the biggest increase since President Donald Trump announced sweeping tariffs in April 2025 and the second-largest jump in the past five years, according to the Goldman Sachs Prime Trading Desk.

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There is a growing risk of a sharp selloff this year for US stocks as the conflict in Iran hurts global markets, according to veteran strategist Ed Yardeni, who updated his outlook for what he described as “fast-moving times.” Yardeni moved the probability of a meltdown up to 35% for the rest of the year, from 20% previously.

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Later this week, the consumer price index along with the personal consumption expenditures price index will give investors fresh insight into inflation. Though, as Scope Markets chief market analyst Joshua Mahony explained, traders will be “well aware of the direction of travel for prices as energy markets soar higher.”

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“While the Federal Reserve are typically encouraged to look through one-off, short-term price shocks, the prospect of an extended period of higher costs for businesses does highlight the risk that they pass that on to the consumer who already faces up to higher prices at the pump,” said Mahony.

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Markets also reacted to Iran naming Mojtaba Khamenei, the son of the late Ayatollah Ali Khamenei, as its new supreme leader while keeping up attacks on several countries in the region. President Trump said on social media that short-term oil movements are a “very small price to pay” and that prices will fall rapidly “when the destruction of the Iran nuclear threat is over.”