US-listed airline stocks took a hammering on Monday after crude oil prices regained strength following the collapse of weekend peace talks between Iran and the US, triggering renewed tensions in the region.
Benchmark US crude jumped $9.43, or 10%, to $103.69 a barrel. Brent crude, the international benchmark, rose $7.04, or 7.4%, to $102.24 a barrel.
Tracking the rise in crude oil prices, Delta Air Lines shares tumbled 3.2%, extending their losing streak to a third straight session, while American Airlines Group, United Airlines Holdings, and Southwest Airlines all fell more than 2.5%.
Alaska Air Group, JetBlue Airways, and SkyWest were also trading in the red. The aviation industry is highly sensitive to crude oil prices, as fuel accounts for over 50% of operating expenses, and any rise in prices can immediately impact profit margins.
Blockade seen as pressure tactic to force Iran into deal
Investors had hoped that the US and Iran could draft a peace deal to end the over-month-long conflict in West Asia, but both countries failed to reach a consensus.
The US on Monday said it had begun blocking ships from entering or exiting Iranian ports in the Strait of Hormuz, in an attempt to ratchet up pressure on Iran to reopen the key oil route.
US President Donald Trump has issued a stark warning to Iran as a US naval blockade at the Strait of Hormuz is now in effect, saying any Iranian vessels approaching it would face immediate elimination.
Iran responded with threats on all ports in the Persian Gulf and the Gulf of Oman, taking aim at US-allied countries.
US President Donald Trump has been putting heavy pressure on Iran to open the key waterway, which accounts for nearly 20% of global crude oil shipments before the war began on 28 February. The US is attempting to take control of the Strait from Iran, which was fully occupied by Iran after the fallout of the war.
By enforcing the blockade, Trump is looking to cut off a significant source of revenue for Iran, but it could also risk pushing oil and gas prices even higher.
Crude oil prices jump over 40% in less than two months
Crude oil prices have surged over 40% since the beginning of March amid fears of supply disruptions, which analysts expect will persist in the near term as tensions show no signs of cooling. Continued control over the Strait of Hormuz is also one of Iran’s key conditions for forging a permanent peace deal.
Apart from escalating actions against Iran alongside Israel, Trump had earlier issued multiple threats, including potential strikes on Iran’s power plants and critical infrastructure if the Strait of Hormuz is not reopened.
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