Oil prices have risen and stocks have slumped after fresh attacks between the US and Iran which threaten to lengthen disruption in the Strait of Hormuz.
Brent crude oil jumped by around 6.5% to 79 US dollars a barrel on Wednesday morning after Donald Trump said the ceasefire was over.
The US president said “as far as I’m concerned, it’s over”, but that he would “speak to our negotiators” in response to media questions ahead of the Nato summit.
This sent oil prices to a high of more than two weeks having been rising by about 2.5% shortly before Mr Trump’s remarks.
Prices have been coming down in recent weeks after the president declared a ceasefire deal had been reached with Iran and that the Strait of Hormuz would reopen.
The initial deal secures safe, toll-free passage of the strait for 60 days, pending the outcome of a final agreement on Tehran’s disputed nuclear plans.
But the agreement was threatened after Iran targeted tankers transiting through the waterway, which is central to negotiations seeking a permanent end to the war.
US forces said they had launched “over 80” strikes on Iranian targets in response, and Iran said it had retaliated with strikes against Bahrain and Kuwait.
The US also reimposed sanctions on Iranian oil, after waiving them as part of the interim ceasefire.
Richard Hunter, head of markets at Interactive Investor, said: “Reports of an Iranian attack on a liquefied natural gas tanker in the Strait of Hormuz was followed by retaliatory US strikes in the region, leading to a spike of more than 3% in oil prices.
“The US also reimposed crude oil sales sanctions on Iran, all of which casts real doubts on the longer-term outlook for peace in the Middle East.”
Kathleen Brooks, research director at XTB, said: “While we have seen escalations in tensions between Iran and the US in recent months, this week’s events are a sign that diplomatic efforts to end the war have ground to a halt.
“Trump did not explicitly say that he would restart the war against Iran, but he showed his frustration with the Iranian regime while at a Nato summit in Turkey.”
A sell-off had swept across European stock markets on Wednesday.
The UK’s FTSE 100 index was down by about 1.6% to 10,493 points shortly after Mr Trump’s remarks, deepening losses from earlier in the morning.
Defence giant Babcock was among the biggest fallers with losses of about 4% while mining giant Antofagasta was also down by more than 4%.
Energy giants BP and Shell were among a handful of stocks making gains amid the rebound in oil prices.
Germany’s Dax index sank by about 2.3% and France’s Cac was down around 2.2% in mid-morning trading.
