Oil prices experienced an uptick on Monday, spurred by renewed tensions in the Middle East that stoked inflation fears and raised expectations of potential interest rate hikes by central banks. The price of Brent crude, a leading global oil benchmark, climbed following an attack on a nuclear power facility in the United Arab Emirates. The rise in oil prices was also influenced by stalled peace negotiations between the United States and Iran, which have now entered their sixth week of ceasefire. Former President Donald Trump intensified the situation with a social media post warning Iran that “time is of the essence,” urging them to act swiftly to avoid severe consequences.
In early trading on Monday, Brent crude surged by up to 1.77%, reaching $111.16 per barrel, marking its highest point in nearly two weeks. However, the price eased to $110 a barrel after Iran announced it had responded to a new proposal from the U.S. aimed at resolving the conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, indicated that mediation efforts were ongoing through Pakistan, though he did not provide further details.
Global bond markets experienced volatility, with the benchmark 10-year U.S. Treasury yield climbing to 4.631%, the highest since February 2025, before retreating to 4.599%. In the UK, the 10-year gilt yield peaked at 5.19%, surpassing an 18-year high set on Friday, before settling at 5.15%. Uncertainty surrounding UK government bonds is partly attributed to political instability, as traders speculate that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham later this year. This unease coincided with a gathering of the UK chancellor, Rachel Reeves, and other G7 finance ministers in Paris to address the economic repercussions of the Middle Eastern conflict.
Economic experts have voiced concerns about the UK’s fiscal outlook. Mohit Kumar, chief economist at Jefferies, highlighted worries among bond investors regarding a possible shift to the left in UK politics. He noted that the UK’s fiscal situation is already precarious, with the government struggling to implement spending cuts. A leftward shift could imply increased public spending, despite limited fiscal capacity, and additional tax hikes might not generate the anticipated revenue. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if the markets perceive Burnham as moving away from high-spending policies.
Elsewhere, Japan’s bond yields rose, with the 10-year yield hitting an almost three-decade high of 2.8% on Monday. This increase came as the Japanese government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. European stock markets opened lower, with the Stoxx Europe 600 index declining by 0.7%, while the UK’s FTSE 100 remained largely unchanged. In Asia, Japan’s Nikkei index dropped by about 1%, Hong Kong’s Hang Seng fell by 1%, and Shanghai’s SSE Composite edged down by 0.1%. Meanwhile, South Korea’s Kospi index closed 0.3% higher.