Crude oil prices surged on Monday amid escalating tensions in the Middle East, which heightened fears of inflation and raised expectations that central banks might need to hike interest rates. Brent crude, the global oil benchmark, saw an increase following an attack on a nuclear power facility in the United Arab Emirates, coinciding with a halt in U.S.-Iran peace negotiations during the sixth week of their ceasefire. Former U.S. President Donald Trump issued a stern warning to Iran via social media, emphasizing urgency in the ongoing talks.
Brent crude prices climbed as much as 1.77% to reach $111.16 per barrel, marking its peak in nearly two weeks, before settling around $110 after Iran announced its response to a fresh U.S. initiative to resolve the conflict. Iran’s foreign ministry representative, Esmaeil Baqaei, confirmed that discussions were ongoing with assistance from a Pakistani intermediary, though he did not disclose further details.
Global bond markets experienced volatility, with the U.S. 10-year Treasury yield touching 4.631%, its highest since February 2025, before slightly retreating to 4.599%. In the UK, the 10-year gilt yield rose to 5.19%, surpassing its 18-year high from the previous Friday, before dipping to 5.15%. This turbulence is partly attributed to political instability, as speculation grows of a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham later in the year. Meanwhile, UK Chancellor Rachel Reeves and other finance ministers from the G7 convened in Paris to address the economic repercussions of the Middle Eastern conflict.
There are concerns among bond investors about a possible political shift in the UK. Mohit Kumar, chief economist at Jefferies, noted that the country’s fiscal health is already strained, with limited capacity for further public spending or tax increases. Kathleen Brooks, research director at XTB, indicated a potential recovery in UK bond yields, contingent on market perceptions of Burnham’s fiscal approach. She highlighted the importance of the 10-year yield falling below the 5% mark as a test of market confidence.
In Japan, bond yields saw an uptick, with the 10-year yield nearing a 30-year high at 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern war. European stock markets opened lower, with the Stoxx Europe 600 declining by 0.7%, while the UK’s FTSE 100 remained stable. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both fell by about 1%, and Shanghai’s SSE Composite edged down 0.1%, though South Korea’s Kospi ended 0.3% higher.