Stocks sank on Wall Street on Thursday after the price of oil spiked to its highest level since the summer of 2024 because of the U.S.-Israeli war with Iran.

The S&P 500 fell 0.6 per cent and erased what had been a small gain for the year so far. The Dow Jones Industrial Average briefly dropped more than 1,100 points before finishing the day with a loss of 784, or 1.6 per cent. The Nasdaq composite slipped 0.3 per cent.

The losses came as financial markets around the world keep following the cue of oil prices. Sharp increases there are raising worries that a long-term surge could grind down the global economy, exhaust households’ ability to spend and push interest rates higher.

The price for a barrel of benchmark U.S. crude shot up 8.5 per cent on Thursday to settle at $81.01 per barrel. Brent crude, the international standard, climbed 4.9 per cent to $85.41 per barrel and is likewise near its highest price since 2024.

Oil prices gave back some of those gains later in the day, which helped stocks in the U.S. moderate their losses at the end of trading. But worries nevertheless remain high about how long disruptions will last for oil production because of the escalating war with Iran.

Prices at U.S. gasoline pumps have already risen because of them. The average price for a gallon is $3.25, up nine per cent from $2.98 a week ago, according to auto club AAA.

If oil prices spike further, such as to $100 per barrel, and stay there, some analysts and investors say it could be too much for the global economy to withstand. Uncertainty about what will happen has caused frenetic swings across financial markets this week, sometimes hour by hour.

Much will depend on what happens with the Strait of Hormuz. Roughly a fifth of the world’s oil typically sails through the narrow waterway off Iran’s coast.

To be sure, the U.S. stock market has a history of bouncing back relatively quickly following conflicts in the Middle East and elsewhere, as long as oil prices don’t jump too high for too long. That has many professional investors suggesting patience and riding through the market’s swings.

“While further escalation remains a risk, we think the more likely outcome is an increase in market risk aversion that likely lasts only a short time until investors can see a winding down of hostilities,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

The S&P 500 is down only 0.7 per cent for the week so far, despite its sharp swings, as gains for Big Tech stocks and oil producers have helped to blunt losses across the rest of the market.

Stocks of airlines fell to some of the U.S. market’s worst losses again on Thursday. Higher oil prices are increasing their already big fuel bills, while the war has left hundreds of thousands of passengers stranded across the Middle East. American Airlines lost 5.4 per cent, United Airlines fell five per cent and Delta Air Lines sank 3.9 per cent.

Stocks of smaller companies, meanwhile, took heavy hits. That’s typical when worries are growing about the strength of the economy and about interest rates rising. The Russell 2000 index of the smallest stocks fell a market-leading 1.9 per cent.

In stock markets abroad, indexes rebounded in Asia following historic losses the day before. South Korea’s Kospi soared 9.6 per cent to recover much of its 12.1 per cent plunge from Wednesday, which was its worst drop ever.

But indexes fell in Europe as oil prices began to accelerate. France’s CAC 40 fell 1.5 per cent, and Germany’s DAX lost 1.6 per cent.