Global oil prices climbed sharply on Wednesday after Iran launched retaliatory attacks against American interests in the Middle East following fresh US military strikes, raising fears of prolonged disruption to global energy supplies and renewed inflationary pressure.
Crude prices gained more than two per cent, extending weekly gains to about 10 per cent after the United States reportedly struck an Iranian island located in the Strait of Hormuz. The attack triggered a new wave of hostilities, with Tehran responding by targeting US interests across several countries in the region.
The escalation has heightened concerns over the Strait of Hormuz, a strategic waterway through which roughly one-fifth of the world’s oil and gas supplies pass. With the passage effectively shut for the foreseeable future, analysts warn that energy prices could remain elevated, adding pressure to global inflation.
The surge in oil prices also rattled financial markets, as investors strengthened expectations that major central banks could continue raising interest rates to combat inflation.
Government bond yields remained close to multi-decade highs, reflecting concerns over persistent inflation, increased government borrowing and a growing supply of corporate debt.
In the United Kingdom, the yield on 30-year government bonds reached its highest level since 1998, while yields on 10-year bonds climbed to levels last seen during the 2007-2008 global financial crisis.
Japan’s 10-year government bond yield rose to its highest level in three decades, while yields on both 10-year and 30-year US Treasury bonds hovered near financial crisis-era highs.
“Bond yields were already rising, and the renewed US-Iran attacks and their impact on oil prices have made investors more concerned about bonds,” Rajeev De Mello of Gama Asset Management said.
“At these levels, higher yields are clearly a headwind to Asian equities, especially longer duration tech stocks.”
Asian stock markets reacted negatively to the heightened geopolitical tensions.
Technology shares led losses across the region, dragging major indexes lower in Tokyo and Seoul. Markets in Hong Kong, Shanghai, Sydney, Singapore, Wellington, Taipei and Manila also closed in negative territory.
The declines followed broad losses on Wall Street, where all three major US indexes ended Tuesday lower.
Investors are now awaiting key US employment and inflation reports expected over the coming week, with the data likely to influence the US Federal Reserve’s interest rate decision later this month.
According to Bloomberg, traders are currently assigning a 70 per cent probability that the Federal Reserve will raise interest rates at its next policy meeting.
Federal Reserve Governor Michael Barr reinforced those expectations, saying policymakers should remain prepared to tighten monetary policy if inflation fails to move toward the central bank’s target.
“If trends in the data give me some confidence that inflation is moderating on a path to two percent, then I think we can take a bit more time to assess our policy stance,” Barr said in prepared remarks.
“However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
Oil Prices
As of about 0230 GMT:
– West Texas Intermediate (WTI) crude rose 1.5 per cent to $91.60 per barrel.
– Brent North Sea crude gained 1.9 per cent to $96.45 per barrel.
Iran Expands Retaliation
Meanwhile, Iran widened its military response by targeting US interests across the Middle East, warning of “severe” consequences following the latest American attacks.
The renewed conflict has expanded beyond the Strait of Hormuz to include US military installations across the region, drawing Washington’s Gulf allies further into the six-month-long confrontation.
Earlier, US President Donald Trump had warned that any Iranian retaliation would be met with “much harder and higher” attacks.
Iranian state media reported that the latest US strikes killed 11 people in the country’s southern and southwestern regions.
Tehran later announced it had launched ballistic missile attacks on two US military bases in Jordan.
However, the Jordanian military said it intercepted 10 ballistic missiles fired from Iran and did not report any casualties or successful strikes on its territory.
According to the Jordanian army, three additional missiles landed in remote areas.
Missile and drone attacks were also reported in Kuwait, where the country’s military said it was responding to Iranian hostilities.
In Bahrain, AFP correspondents reported hearing air raid sirens early Wednesday as tensions continued to escalate across the Gulf.
