At the close, the Dow Jones Industrial Average had lost 1.6 percent, the broad S&P 500 index 1.5 percent, while the technology-heavy Nasdaq Composite Index fell 1.8 percent.
The grim figures came after Iran's new leader Mojtaba Khamenei announced in a statement on Wednesday afternoon that the Strait of Hormuz, which is vital to the global economy, will remain closed.
At 9 p.m., the price of a barrel of Brent oil was over $100.
Analyst Adam Crisafulli said in a written comment to CNBC that Iran's strategy of sowing chaos in the Persian Gulf through attacks on oil tankers is currently working.
"The US and Israel have military dominance and Iran's missile and nuclear programs may be weakened, but the hardline regime in Tehran stands firm, and its plan currently seems to be to pressure Trump over oil," Crisafulli wrote further.
The International Energy Agency (IEA) decided on Wednesday to release 400 million barrels from its oil reserves to reduce the effects of the US and Israel's war against Iran.
However, the IEA emphasized that this is only a short-term solution.
