Oil prices experienced an uptick on Monday, driven by renewed tensions in the Middle East and concerns that inflation could prompt central banks to hike interest rates. Brent crude, the global oil benchmark, saw its value rise following an attack on a nuclear facility in the United Arab Emirates. This escalation occurred amidst faltering peace negotiations between the United States and Iran, now in their sixth week of a ceasefire. Former President Donald Trump heightened tensions with a provocative social media post warning Iran that time was running out, suggesting swift action was necessary to avoid further conflict.
Early trading saw Brent crude climbing 1.77% to $111.16 per barrel, marking its highest in nearly two weeks before settling back to $110. This adjustment came after Iran indicated it had responded to a new U.S. initiative aimed at resolving the conflict, with diplomatic exchanges continuing through a Pakistani intermediary, according to Iranian foreign ministry spokesperson Esmaeil Baqaei.
The turbulence extended to global bond markets, where the 10-year U.S. Treasury yield climbed to 4.631%, a peak not seen since February 2025, before easing slightly to 4.599%. In the UK, political uncertainty added to market volatility, as the 10-year gilt yield surpassed an 18-year high, reaching 5.19% before stabilizing at 5.15%. Speculation over a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham later this year contributed to the instability in UK government bonds.
Amidst these developments, UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to deliberate on the economic repercussions of the Middle Eastern conflict. Concerns over potential shifts in UK fiscal policy further influenced market dynamics, with economists like Mohit Kumar from Jefferies expressing apprehension over a “shift to the left” and its implications on public spending and tax policy. Meanwhile, Kathleen Brooks of XTB suggested that UK bond yields might recover if investors felt reassured about Burnham’s fiscal approach.
Elsewhere, Japan’s bond yields rose as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern crisis, with the 10-year yield reaching a near 30-year high of 2.8%. European stock markets opened lower, with the Stoxx Europe 600 index down by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both dipped by about 1%, whereas South Korea’s Kospi closed slightly higher, up 0.3%.