Oil Prices Surge as Conflict Jolts Global Markets

Global financial markets began the week on an uneasy footing as escalating tensions in the Gulf region reignited concerns over energy supplies and inflation. Reports of intensified conflict, coupled with Iran’s claim that the Strait of Hormuz has once again been closed, sent oil prices sharply higher and weighed heavily on equity markets across Asia.

Trading on Monday reflected growing investor anxiety. Most major Asian stock indices opened lower as fears mounted that higher energy costs could fuel another wave of global inflation. The renewed geopolitical uncertainty also rippled through currency and bond markets, prompting investors to shift towards traditional safe-haven assets.

The US dollar strengthened while yields on US Treasury bonds climbed, reflecting expectations that persistent inflationary pressure could influence future monetary policy. Market participants are increasingly speculating that if energy prices continue to rise, the US Federal Reserve may be forced to consider further interest rate increases.

Attention is now focused on Federal Reserve Chair Kevin Warsh, who is scheduled to deliver his first testimony before the US Congress on Tuesday. Investors will closely scrutinise his remarks for any indication of the central bank’s outlook on inflation, interest rates and the broader economy.

The market is also awaiting the release of the United States’ June inflation figures on Tuesday. Economists believe inflation may have eased slightly during the month because fuel prices had softened over recent weeks. Even so, analysts caution that the latest rebound in crude oil prices could reverse that trend in the months ahead.

Brent crude jumped 4.1 per cent during Monday morning’s trading to reach $79.11 per barrel, compared with $70.14 only a few days earlier. US benchmark West Texas Intermediate (WTI) crude also rose by 4.1 per cent to $74.37 per barrel, highlighting the market’s sensitivity to developments in the Middle East.

Concerns surrounding the Strait of Hormuz remain at the centre of investor attention. Although US officials said that approximately 20 commercial vessels had been escorted safely through the strategic waterway during the previous 24 hours, shipping-tracking services indicated that maritime traffic had yet to return to normal levels. Any prolonged disruption to the route could have significant consequences, as the strait is one of the world’s most important oil transit corridors.

Corporate earnings are expected to become the next major driver of market sentiment. Several leading American banks are due to publish quarterly financial results from Tuesday, followed by major companies including Netflix and General Electric later in the reporting season. Investors hope that strong corporate earnings could help offset some of the uncertainty generated by geopolitical risks.

Despite the current market volatility, analysts at investment bank Citi remain optimistic about the long-term outlook for technology stocks. They argue that although artificial intelligence-related shares have experienced periods of volatility, companies in the sector continue to generate healthy profits while maintaining attractive long-term valuations.

Nevertheless, early trading offered little evidence of that optimism. Futures linked to the S&P 500 and Nasdaq traded lower, while futures for Europe’s major stock indices also declined. Japan’s Nikkei index extended its losses for a second consecutive week, and the MSCI Asia-Pacific Index excluding Japan also slipped into negative territory.

Outlook for Oil Prices

Oil prices had previously retreated to pre-conflict levels following the signing of a memorandum of understanding (MoU) between the United States and Iran on 17 June. Since then, prices have gradually recovered. Following Monday’s surge, crude oil prices now stand roughly 9 per cent above the levels recorded before the first round of US and Israeli strikes on Iran earlier this year.

Mukesh Sahdev, founder and chief oil analyst at Sydney-based research firm XAnalysts, believes crude prices are likely to remain above $70 per barrel throughout August and September as geopolitical uncertainty persists. In a note issued to clients on Saturday, he said prices could experience sharp short-term swings but were expected to remain broadly within that range.

Sahdev also observed that oil refiners typically make purchasing decisions several weeks in advance for long-distance imports. As a result, many have already begun reducing their immediate dependence on Middle Eastern crude, a trend that could accelerate if regional tensions continue.

Fabien Yip, a market analyst at Sydney-based financial services firm IG, offered a similar assessment. While acknowledging the latest market volatility, he believes the likelihood of oil prices climbing above $100 per barrel remains relatively low.

In a note published on Monday, Yip said markets had previously assumed that the fragile understanding between Washington and Tehran would continue to hold, allowing oil prices to return to pre-conflict levels during June. The latest escalation, however, has demonstrated how vulnerable that assumption was.

The rise in oil prices has also affected global bond markets. Yields on two-year US Treasury bonds climbed to their highest level since 2025, providing additional support for the US dollar.

Higher bond yields, however, reduced demand for non-yielding assets such as gold. Spot gold prices fell by more than 1 per cent, slipping to $4,076 per ounce, as investors reassessed the outlook for inflation, interest rates and global financial stability.