Trump cuts all trade with Spain, IBEX drops 2% as NATO rift widens

Trump ordered Treasury Secretary Scott Bessent to sever all US trade with Spain, calling the NATO ally "terrible" as a widening transatlantic rift over Iran deepened.

Trump ordered Treasury Secretary Scott Bessent to cut all trade with Spain on Wednesday, calling the country a "terrible partner" in NATO while the US-Iran conflict deepened, sending the Spanish IBEX 35 index down nearly 2 percent.

"We don't want to do any trade business with Spain anymore," Trump told reporters at the NATO summit in Ankara, Türkiye. "They're a terrible partner."

The move follows Spain's decision in March to deny US aircraft access to its airspace and military bases for operations related to Iran. Madrid also refused to meet NATO's defense spending target of 5 percent of GDP, committing instead to 2.1 percent. The Spanish IBEX 35 fell as much as 2 percent on the announcement, with losses accelerating through the afternoon session.

The trade cutoff marks an unprecedented escalation against a NATO ally and threatens to fracture alliance unity as Middle East tensions escalate. US-Iran hostilities flared anew this week after Washington launched strikes on more than 80 Iranian targets, triggering retaliatory Iranian attacks on US facilities in Bahrain and Kuwait that sent Brent crude above $78 a barrel.

Spain's NATO Defection and the Iran Factor

Spain's refusal to support US military operations against Iran has been a persistent irritant in bilateral relations since the conflict began in February. Defense Minister Margarita Robles confirmed on March 31 that the government had restricted military aircraft involved in Iran-related operations from using Spanish airspace, and barred the US from using two joint military bases on Spanish territory for strike missions.

The last time Washington imposed trade sanctions on a NATO ally was in 2019, when the US threatened tariffs on French goods over the digital services tax — a dispute that was resolved through negotiation. The current escalation, by contrast, involves a complete severance of trade ties, a step without modern precedent within the alliance.

Cross-Asset Fallout

The trade announcement compounded broader market stress from the US-Iran escalation. Brent crude rose 5.3 percent to $78.09 a barrel, while WTI climbed 5.4 percent to $74.23, as the Strait of Hormuz — through which about 21 percent of global oil trade passes — became a flashpoint after attacks on three commercial vessels, including a Qatari LNG carrier.

European equities came under pressure, with the Stoxx 600 falling as investors priced in the risk of further US trade actions against other NATO members deemed insufficiently supportive. The euro weakened against the dollar as the geopolitical risk premium widened. Spanish bonds sold off, pushing the 10-year yield higher, as traders assessed the economic cost of losing access to the US market.

Trump also criticized NATO broadly, accusing the alliance of failing to support Washington on Iran. "I'm very upset with NATO," he said. "They were unwilling to help us." The comments came alongside his renewed criticism of alliance burden-sharing, claiming the US was "paying 100 percent of NATO" while several countries contributed nothing.

What Comes Next

The trade cutoff takes effect immediately, though the mechanism and scope remain unclear. Treasury Secretary Bessent has been directed to implement the order, but no details have been released on which Spanish goods or services will be affected or whether existing contracts will be honored. Spain's economy, which exported about $18 billion in goods to the US in 2025, faces significant disruption if the cutoff is comprehensive.

The broader risk for European markets is contagion. Trump's criticism of NATO burden-sharing and his willingness to punish individual members could extend to other countries he has previously targeted, including Germany and Belgium, which have also fallen short of the 5 percent defense spending target. Investors are watching for any further announcements from the Ankara summit that could signal a wider trade confrontation within the alliance.

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