Oil prices surged on Monday as heightened tensions in the Middle East rekindled inflation concerns, prompting speculation that central banks might be compelled to raise interest rates. Brent crude, the global oil benchmark, experienced a notable increase after a nuclear power plant in the United Arab Emirates came under attack. The rise in oil prices coincided with stalled peace talks between the United States and Iran, now in their sixth week of ceasefire. Former President Donald Trump heightened the tension by posting on social media, urging Iran to act quickly or face dire consequences, stating, “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!”
On Monday, Brent crude prices reached as high as $111.16 per barrel, marking a nearly two-week high, before settling back to $110. This adjustment came after Iran announced it had responded to a new U.S. proposal aimed at resolving the conflict, with discussions ongoing through a Pakistani mediator, according to Iran’s foreign ministry spokesperson, Esmaeil Baqaei. Meanwhile, global bond markets exhibited volatility, with the benchmark 10-year U.S. Treasury yield climbing to its highest level since February 2025 at 4.631% before easing to 4.599%.
In the UK, political uncertainty contributed to fluctuations in government bonds. The 10-year gilt yield peaked at 5.19%, surpassing an 18-year high set last Friday, and later receded to 5.15%. Speculation about a potential leadership challenge to Prime Minister Keir Starmer from Manchester Mayor Andy Burnham added to the instability. As UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the Middle East conflict’s economic repercussions, concerns about a possible “shift to the left” in UK politics were voiced by Mohit Kumar, chief economist at Jefferies. Kumar noted that increased public spending might be challenging given the government’s fiscal constraints, with tax hikes reaching limits of productivity.
Kathleen Brooks, research director at XTB, suggested that UK bond yields could recover if the market perceives Burnham’s influence as lessening. She noted that the key test for UK markets would be whether the 10-year yield can drop below 5% and if the 30-year yield shows enough confidence in Burnham to retreat from its 1998-level highs. Across Asia, bond yields rose in Japan, with the 10-year yield hitting a nearly 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle East conflict.
European stock markets opened lower, with the Stoxx Europe 600 index, which tracks major companies on the continent, declining by 0.7%. The UK’s FTSE 100 remained largely unchanged. In Asia, Japan’s Nikkei index fell by about 1%, while Hong Kong’s Hang Seng index also dropped 1%, and Shanghai’s SSE Composite slightly dipped by 0.1%. South Korea’s Kospi index, however, saw a slight increase, closing 0.3% higher.