Crude surges, stocks dive as war keeps investors on edge

Oil prices rallied and stocks tumbled again Monday as the Middle East crisis escalated with the entry of Houthi rebels into the Iran war and investors grew increasingly concerned the United States would send in ground troops.

 The spectre of a widening conflict grew as Yemen's Houthi rebels on March 29 said they had fired "a barrage of cruise missiles and drones" at strategic sites in Israel.

The strikes raised concern about the war spreading to the Red Sea, with Saudi Arabia rerouting much of its oil exports there to avoid the Strait of Hormuz.

The news sent the price of oil to its highest level since earlier in the month after the United States and Israel began their campaign against Iran. Both main contracts jumped more than three percent at one point, with Brent hitting close to $117 a barrel.

Adding to the dour mood were Donald Trump's remarks to the Financial Times that he wanted to "take the oil in Iran" and could take the country's Kharg Island "very easily."

The surge in oil prices and the prospect of an extended conflict put more pressure on equities amid fears about a surge in inflation that could hit the world economy.

"The market is now reacting to higher crude pricing and towards the fallout in the economic consequences," wrote Pepperstone's Chris Weston.

"Higher short-term inflation expectations, volatility in the interest rate markets, and growing concerns around supply shortages/inventory and the subsequent impact on the March/April economic data series and corporate earnings is now front and center," he added.

"The Houthi's ability to disrupt shipping through the Bab al-Mandab Strait, which accounts for roughly 12 percent of global trade, is the new key risk" he said.

"Any meaningful disruption, married with a sharp rise in insurance costs, could drive another leg higher in crude and further pressure risk assets."