Dow closes down 400 points as Iran war escalates

The Dow Jones Industrial Average closed down more than 400 points on Tuesday as the U.S.-Israeli war with Iran prompted a selloff. The price level marked a significant recovery from a drawdown of more than 1,200 points earlier in the day.

The Dow close down 403 points, or 0.8%, while the S&P 500 dropped 0.9%. The tech-heavy Nasdaq declined 1%.

Investor reaction departed from the muted response a day earlier, when the major indexes closed essentially flat.

Oil prices, meanwhile, jumped for the second consecutive day as traders feared a prolonged blockade of the Strait of Hormuz, a trading route that facilitates the transport of about one-fifth of global oil supply.

The national average price of gasoline in the U.S. soared about 11 cents overnight to $3.11, AAA said on Tuesday.

Despite the lackluster trading session on Tuesday, stock prices improved over the latter part of the day. The rally owed in part to an afternoon announcement from President Donald Trump on social media ordering the federal government to provide “political risk insurance and guarantees for the Financial Security of ALL Maritime Trade.”

“If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible,” Trump added.

President Donald Trump announced “major combat operations” against Iran on Saturday, with daytime strikes in the joint U.S.-Israel attack targeting military and government sites, officials said.

On Sunday, Iranian state television confirmed that Ayatollah Ali Khamenei was among those killed by airstrikes in Tehran.

Iran is responding to the U.S.-Israeli operation with missile and drone attacks targeting Israel, regional U.S. bases and Gulf nations. American diplomatic facilities have also been attacked.

U.S. Treasury yields ticked higher on Tuesday, suggesting possible concern about economic instability and inflation stemming from the Iran War.

Since bonds pay a given investor a fixed amount each year, the specter of inflation risks higher prices that would eat away at those annual payouts.

In turn, bonds often become less attractive in response to economic turmoil. When demand falls, bond yields rise.

ABC News’ Jon Haworth, Jack Moore, Nadine El-Bawab, David Brennan, Kevin Shalvey, Meredith Deliso and Leah Sarnoff contributed to this report.