Oil prices surged to multi-month highs on Thursday amid escalating conflict in the Middle East, triggering widespread declines in global stock markets and rising bond yields as investors weighed inflation concerns and potential central bank interest rate hikes. The renewed tensions, centered around critical maritime chokepoints, have heightened fears of supply disruptions and added pressure to already elevated inflation levels worldwide.
Brent crude surpassed $101 per barrel on Thursday, reaching its highest level since July, while West Texas Intermediate (WTI) crude climbed to nearly $98, marking a gain of more than 20 percent in less than a week. Some reports placed oil prices even higher, approaching $109 a barrel, reflecting continued volatility since the outbreak of hostilities involving Iran in late February. The conflict has intensified around key waterways, including the Strait of Hormuz and the Bab al-Mandab Strait, through which a significant portion of global oil shipments pass.
Iran has been conducting attacks on vessels attempting to transit the Strait of Hormuz and recently announced an expansion of a no-go zone around the waterway. Tehran also claimed responsibility for a strike on a U.S. military base in Jordan, purportedly in retaliation for U.S. forces destroying Iranian oil tankers. Meanwhile, Saudi Arabia faces its own challenges as Houthi rebels in Yemen have targeted oil facilities in the kingdom as part of a broader offensive aimed at the Red Sea shipping lanes. The conflict has forced Saudi Arabia to redirect some oil exports through longer and more expensive routes such as the Suez Canal, leading to a reported 13-year low in the kingdom’s oil shipments.
The disruption to supply chains and the risk of further escalation have stoked concerns that inflation could accelerate, putting pressure on central banks to continue tightening monetary policy. The European Central Bank raised its key interest rate for the second time since the conflict began, and speculation is mounting that the U.S. Federal Reserve will follow suit at its upcoming meeting. The Fed is closely monitoring key inflation data due for release, which investors view as a possible catalyst for additional rate hikes.
Financial markets responded accordingly, with major stock indexes in Asia, Europe, and the United States posting declines. In Asia, markets including Seoul, Hong Kong, Sydney, Tokyo, Shanghai, Singapore, Wellington, Taipei, and Manila all fell, some by over 1 percent. On Wall Street, the Dow Jones Industrial Average closed down 0.8 percent, while London’s FTSE 100 dropped 1.3 percent. Government bond yields also climbed, with the 10-year U.S. Treasury yield exceeding 4.9 percent for the first time since 2023, contributing to the highest average mortgage rates in over a year and dampening the U.S. housing market.
Rising energy costs are translating into higher prices at the pump, with national averages for gasoline and diesel in the U.S. reaching historic highs. Gasoline prices have increased roughly 44 percent since the conflict’s inception, while diesel has surged nearly 60 percent, straining consumers and businesses already facing persistent inflationary pressures.
Market observers warn that continued hostilities and expansion of the conflict could have severe consequences for global economic stability and energy security. With no immediate resolution in sight, geopolitical risks remain an overriding concern for investors and policymakers alike. Some political figures have indicated that the conflict may persist through significant upcoming events such as the U.S. midterm elections, prolonging uncertainty in financial and commodity markets.