Stocks plummet and oil surges as traders eye the potential for the Iran war to drag on

• Stocks slid and energy prices jumped on Tuesday as the Iran war shook global markets.
• Travel stocks extended their declines and energy stocks registered further gains.
• Treasury yields rose for a second day amid fears of higher inflation as a result of the war.

Stocks plunged, energy prices soared, and bond yields spiked for a second day on Tuesday as the escalating conflict between Iran and the US and its allies continued to roil global markets.

In retaliation for US and Israeli strikes that killed Supreme Leader Ayatollah Ali Khamenei and other senior officials last weekend, Iran has fired missiles at Israel and at US bases in Bahrain and Jordan, and conducted drone strikes on US embassies in Kuwait and Saudi Arabia.

Iran has also said the Strait of Hormuz, a key shipping lane that handles 20% of global oil flows, is closed, and that it will attack any vessels that try to pass through.

Here's how key markets were reacting on Tuesday:

Stocks

US stocks dropped, with Tuesday's reaction more dramatic than Monday's declines. The Dow was down 1200 points.

Here's where major indexes stood 10:30 a.m. ET opening bell on Tuesday:

S&P 500: 6,725.52, down 2.3%

Dow Jones Industrial Average: 47,706.60, down 2.45% (-1,198.18 points)

Nasdaq Composite: 22,175.66, down 2.5%

Traders see the possibility that the conflict drags on after the uncertain timelines given by the administration. Donald Trump said the war could last up to five weeks, but could go on "far longer."

Deutsche Bank researchers wrote in a morning note that the S&P 500 has only fallen more than 15% when an oil shock has caused at least one of three things: at least a 50% to 100% spike in oil prices lasting several months, a significant economic slowdown, or a hawkish response from central banks to combat inflation.

"The critical question over the days ahead will be if one of these boxes is ticked," they wrote.

Global stock markets also tumbled. Hong Kong's Hang Seng closed 1% lower, while South Korea's KOSPI tumbled 7%, its sharpest one-day drop in 19 months.

In Europe, Germany's DAX was trading 3.5% lower, while Britain's FTSE 100 and France's CAC 40 were down around 3%.

Energy prices

Crude oil prices surged again, with Brent crude and West Texas Intermediate both up around 7% at around $83 and $76 a barrel, respectively.

Other energy commodities also rose.

One of the most striking moves was a 42% rise in futures for Dutch TTF, the benchmark price for European natural gas, to over 60 euros per megawatt-hour.

The surge was fueled by Qatar suspending production at the world's largest LNG export plant after an Iranian drone strike, as the country accounts for 20% of global supply.

"The suspension of LNG production in Qatar is a particularly sensitive pressure point and has seen gas prices surge globally," he continued.

"The longer oil and natural gas prices remain elevated, the greater the risk of a meaningful impact on inflation, which could mean higher interest rates, an event that's typically negative for equity markets," he added.

Bonds

Treasury yields spiked again on Tuesday. That's an unusual move, given that traders often pile into US government debt as a safe haven during times of uncertainty. However, markets are also eyeing the expectation for higher inflation as a result of the war, which could keep rates elevated as the Federal Reserve tries to keep a lid on prices.

The 10-year Treasury yield jumped five basis points to 4.1%. The yield rose nine basis points on Monday.