Oil prices jumped about 3% Tuesday morning after Iran vowed retaliation following the US military’s “self-defense strikes” in the Strait of Hormuz, though stocks ticked up as investors held onto hopes for a peace deal.

Brent crude oil jumped 3.9% to $97.07 a barrel, while West Texas Intermediate futures were trading 2.9% lower at $93.82 compared with Friday’s close.

There was no WTI price settlement on Monday because of the Memorial Day holiday.

Iran said Tuesday it would retaliate for what it described as a violation of the ongoing ceasefire agreement, after US Central Command on Monday confirmed that it had launched strikes on Iranian vessels that were allegedly laying mines in the strait.

Despite the apparent reheating of tensions, US stocks rose Tuesday morning following positive signals from the Trump administration and Iranian media on negotiations.

The S&P 500 and Nasdaq had risen 0.8% and 1.3%, respectively, as of around 10:15 a.m. ET, while the Dow Jones Industrial Average traded roughly flat.

In a Monday morning Truth Social post, Trump wrote that negotiations with Tehran “are proceeding nicely” – though he added the US will accept “only…a Great Deal for all or, no Deal at all.”

Iran’s semi-official Tasnim news agency also reported that recent talks with the US have been “overall good,” though it added that a peace deal depends on Washington’s release of $24 billion in frozen Iranian funds.

In his social media post, the president also said he recently urged Saudi Arabia, Qatar, Pakistan, Turkey, Egypt and Jordan to sign the Abraham Accords, a series of US-brokered treaties meant to normalize relations between Israel and Arab countries.

The latest US strikes came hours later.

Strong stock market gains have remained a bright spot in the US economy, as the S&P 500 last week clinched its longest weekly winning streak since late 2023. 

The Dow climbed 2.1% last week for its third week in the green in the past four weeks, while the Nasdaq increased 0.5% for its seventh gain in the last eight weeks.

But as the war in Iran has sent inflation to its highest level in three years and kept crude oil prices elevated, traders are doubtful the Fed will slash interest rates anytime soon.

Traders are even pricing in 10% odds of a quarter-point hike at the Fed’s meeting in July – up from a less-than-1% likelihood a month ago, according to CME FedWatch, which tracks 30-Day Fed Funds futures prices.

And analysts have been warning that higher oil prices could be here to stay, as damage to Middle Eastern facilities threatens to prolong the worst-ever global energy supply disruption.

Swiss investment bank UBS warned Friday that cumulative oil production losses could top 1 billion barrels by the end of the month.

Observed global oil inventories plunged by a combined 246 million barrels in March and April, according to the bank.

The global oil market seemingly remains “strongly undersupplied,” the bank said, even as energy exporters like the US rush to shift their supply.