July 29, 2026, (Inside AI) — Oil prices surged and Asian chip stocks extended their rout on Tuesday after Iran launched what the US military called an attempted surprise attack against American forces in the Middle East. Brent crude, the international benchmark, jumped 3.8% to $87.26 a barrel.
The Pentagon said it intercepted multiple ballistic missiles fired by Iran at a US base in Jordan, according to a report from Axios. The attack ended a brief pause in fighting and came as Washington worked with Saudi Arabia to strike militia sites in Iraq used by Tehran-backed groups to launch recent attacks.
In Asia, the sell-off in semiconductor stocks deepened, with South Korea's benchmark index tumbling 8.3%. SK Hynix shares fell 9% even after the company reported a six-fold surge in quarterly profit, while Samsung Electronics dropped 6% ahead of its earnings report tomorrow. The declines followed a 1% drop in the Nasdaq on Monday, where Advanced Micro Devices fell 8.1%, Micron slid 8.9%, and Western Digital lost 6.9%.
The twin shocks of geopolitical turmoil and a persistent AI-driven tech sell-off have created a volatile backdrop for the Federal Reserve's interest rate decision later today. Market pricing puts a 32% chance of a rate hike, making this the most uncertain Fed meeting since December 2018, according to Jim Reid, a strategist at Deutsche Bank.
"All that leaves a volatile backdrop ahead of today's FOMC decision, which is the most finely poised in years in terms of market pricing," Reid wrote in a note to clients.
The Fed's decision is complicated by the renewed escalation in the Middle East, which could worsen the inflation outlook. Deutsche Bank's US economists expect the central bank to leave rates unchanged but see significant risks of a hike. If the Fed holds steady, they anticipate at least a couple of dissents in favor of tightening.
The sell-off in chip stocks reflects deeper concerns about the sustainability of the artificial intelligence boom that has driven valuations for months. Investors are increasingly questioning whether the massive capital expenditures on AI infrastructure will yield near-term returns, especially as global economic uncertainty grows. SK Hynix, a key supplier of high-bandwidth memory for AI chips, posted record profits but still saw its shares slump, signaling that the market has already priced in much of the AI growth story.
The geopolitical flare-up adds another layer of risk. Oil prices have been sensitive to Middle East tensions, and a sustained disruption could push Brent crude above $90, analysts warned. Higher energy costs would feed into inflation, potentially forcing the Fed's hand. The last time the market was this divided before a Fed meeting was in 2018, when a 25-basis-point hike was 65% priced the day before.
"With chair Warsh shying away from policy guidance, we've seen one regime shift compared to the past few years when markets received a steer from officials' commentary or via the financial press," Reid added.
The current turmoil echoes past episodes where geopolitical shocks and tech corrections collided. During the 2014 oil price crash, energy stocks dragged down markets, but the broader economy benefited from lower fuel costs. Today's scenario is inverted: higher oil prices threaten to choke off growth just as the AI investment cycle faces its first major test. The Federal Reserve's policy statement will be parsed for any shift in language on inflation risks or economic resilience.
Meanwhile, the chip rout has spread beyond Asia. European semiconductor stocks opened sharply lower, with ASML and Infineon both down over 5%. The Philadelphia Semiconductor Index has now fallen 12% from its July peak, entering correction territory. Some analysts see the sell-off as a healthy reset after frothy valuations, but others warn of a broader tech unwind if the Fed signals a longer tightening cycle.
For now, all eyes are on the Fed. A surprise hike could accelerate the chip sell-off and strengthen the dollar, further pressuring emerging markets. A hold, with hawkish dissents, might keep markets on edge. As Reid noted, the uncertainty is historic. The last time the Fed raised rates amid such geopolitical chaos was during the 1990 Gulf War, a period that saw oil prices double and a brief recession. Whether history rhymes may depend on how long the Iran standoff lasts and whether AI demand holds up.
