Trump nears decision on Iran strike as markets sell off 2.7%

President Donald Trump is nearing a decision on a large-scale military operation against Iran, according to an Axios report, triggering a broad equity selloff that erased about $1.2 trillion in market value across U.S. indexes Tuesday.

"The market is pricing in a scenario where the Strait of Hormuz becomes effectively closed for an extended period," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "That's a structural shock to oil supply, not a tactical one."

The Nasdaq Composite fell 2.7%, the S&P 500 dropped 1.7% and the Dow Jones Industrial Average lost 1.2%. The Cboe Volatility Index surged 22% to above 30, its highest level since the Iran war began in late February. West Texas Intermediate crude jumped 4.3% to $89.70 a barrel, while gold rose 1.8% to $2,485 an ounce as investors rotated into haven assets.

A full-scale U.S. military campaign against Iran risks disrupting the Strait of Hormuz, a chokepoint that handles about 21% of global oil trade. The war has already cost $37.5 billion and claimed at least 18 American lives, with 500 service members injured, according to Pentagon data disclosed this week. Trump is seeking an additional $67 billion in emergency defense funding.

Escalation after months of attrition

The escalation comes as the administration faces mounting domestic pressure over a conflict that began Feb. 28 with U.S. airstrikes on Iranian military targets. Secretary of Defense Pete Hegseth told the Senate Appropriations Committee on Tuesday that Iran is "at its weakest point militarily in decades," even as Iranian forces continue to strike U.S. positions. Three American soldiers were killed last week in Jordan when Iranian missiles hit a U.S. base, and a fourth died in northern Iraq during a controlled detonation of an Iranian drone.

Iranian Foreign Minister Abbas Araghchi said Monday that Tehran would end the war only when it has "the upper hand in the field," signaling no appetite for negotiations. The U.S. has conducted nine consecutive nights of strikes on Iranian military infrastructure, targeting air defenses, coastal surveillance sites and missile launch capabilities, according to Central Command.

Oil at the center of the risk calculus

The Strait of Hormuz has emerged as the primary flashpoint. Iran's Islamic Revolutionary Guard Corps said Sunday that two oil tankers exploded in the southern waterway and warned the corridor would remain unsafe as long as U.S. military operations continue. The Houthi rebel group in Yemen, an Iran-backed proxy, announced a naval blockade on all ships from Saudi Arabia in the Red Sea, threatening an additional oil supply route.

The last time a major military confrontation threatened the Strait of Hormuz was during the Iran-Iraq tanker war in the 1980s, when crude prices more than doubled and global shipping insurance rates surged tenfold. Croft said the current risk premium in oil — about $8 to $10 a barrel — could expand rapidly if the U.S. follows through on a ground operation.

Political and fiscal toll mounts

A Washington Post-Ipsos poll found 69% of Americans disapprove of Trump's handling of the Iran conflict, with gasoline prices back above $4 a gallon nationally. House Speaker Mike Johnson told reporters this week that the war "needs to end," a sign of growing unease among Republicans ahead of the November midterm elections.

The $67 billion supplemental request brings total projected war spending to more than $100 billion, a figure that has drawn scrutiny from both parties. Hegseth also asked Congress for $1.5 trillion in base defense spending for the next fiscal year, a 44% increase from the current budget.

Trump has not set a timeline for his decision on a large-scale operation. The administration has argued it does not need congressional approval to expand the conflict, citing the 2001 Authorization for Use of Military Force.

This article is for informational purposes only and does not constitute investment advice.