Oil prices surged on Monday as renewed tensions in the Middle East heightened inflation concerns and led to speculation about potential interest rate hikes by central banks. Brent crude, the global oil benchmark, increased by as much as 1.77% to reach $111.16 per barrel, marking its highest point in nearly two weeks. This spike followed an attack on a nuclear power plant in the United Arab Emirates and the stalling of peace talks between the U.S. and Iran in their sixth week of ceasefire negotiations. Former President Donald Trump added to the tensions by warning on social media, “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!”
Despite the initial rise, Brent crude prices later settled at $110 per barrel after Iran announced it had responded to a new U.S. proposal aimed at resolving the conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, confirmed that exchanges were ongoing through a Pakistani mediator, though he did not provide further details. Meanwhile, global bond markets experienced volatility, with the 10-year U.S. Treasury yield reaching 4.631%, its highest since February 2025, before easing to 4.599%.
In the UK, political uncertainty contributed to fluctuations in the bond market. The 10-year gilt yield peaked at 5.19%, surpassing the 18-year high from last Friday, before dropping back to 5.15%. This volatility is partly driven by speculation that Prime Minister Keir Starmer may face a leadership challenge from Manchester Mayor Andy Burnham later this year. As UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the economic ramifications of the Middle East conflict, there were concerns about the UK’s fiscal position. Mohit Kumar, chief economist at Jefferies, noted worries about a potential “shift to the left” in the UK’s political landscape, which could lead to increased public spending despite limited fiscal space.
Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets believe Burnham could be restrained from high-spending policies. “If bond markets think they have tamed Burnham from his high-spending ways, then we could see UK yields attempt a retreat on Monday,” she commented. She highlighted the importance of whether the 10-year yield could fall below 5% and if the 30-year yield would pull back from near 1998-level highs.
Elsewhere, Japan’s bond yields increased, with the 10-year yield hitting a nearly 30-year high of 2.8% as the government prepared to issue new debt in response to the Middle East crisis. European stock markets opened lower, with the Stoxx Europe 600 index dropping by 0.7%, while the UK’s FTSE 100 index remained relatively unchanged. In Asia, Japan’s Nikkei fell by about 1%, Hong Kong’s Hang Seng index declined 1%, and Shanghai’s SSE Composite slipped 0.1%, whereas South Korea’s Kospi rose 0.3%.