Oil prices experienced an uptick on Monday as escalating tensions in the Middle East heightened inflation concerns and raised expectations that central banks might need to adjust interest rates. Brent crude, the global oil benchmark, saw an increase after an attack targeted a nuclear power facility in the United Arab Emirates. This development coincided with a stall in peace negotiations between the United States and Iran, now in their sixth week of ceasefire. Former President Donald Trump fueled the urgency on social media, stating, “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!”
In response to the heightened tensions, Brent crude prices surged 1.77% to reach $111.16 per barrel, marking the highest point in nearly two weeks, before slightly receding to $110 a barrel. Meanwhile, Iran indicated progress by revealing they had responded to a new U.S. proposal aimed at resolving the ongoing conflict. Esmaeil Baqaei, a spokesperson for Iran’s foreign ministry, acknowledged that discussions were ongoing with Pakistan acting as a mediator, though he did not provide specific details.
Global bond markets displayed volatility amidst these developments. The benchmark 10-year U.S. Treasury yield climbed to 4.631%, its highest since February 2025, before settling at 4.599%. In the UK, the 10-year gilt yield reached 5.19%, surpassing an 18-year high set on Friday, before easing to 5.15%. Political uncertainties in the UK also contributed to the instability, as speculation mounts regarding a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham. This uncertainty coincided with UK Chancellor Rachel Reeves and other G7 finance ministers gathering in Paris to assess the economic repercussions of the Middle Eastern conflict.
Mohit Kumar, chief economist at Jefferies, expressed concerns over the UK’s fiscal position and the potential shift towards increased public spending. He noted that an already strained fiscal scenario could worsen with further spending, despite limited fiscal capacity and diminishing returns from tax hikes. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if markets perceive a restraint on Burnham’s high-spending tendencies. She emphasized the significance of the 10-year yield falling below 5% and the 30-year yield pulling back from 1998-level highs.
In Asia, Japan’s bond yields rose, with the 10-year yield reaching nearly 30-year highs at 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern conflict. Meanwhile, European stock markets opened on a lower note, with the Stoxx Europe 600 dropping 0.7% and the UK’s FTSE 100 remaining relatively stable. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both fell by approximately 1%, while Shanghai’s SSE Composite saw a mild 0.1% dip. Conversely, South Korea’s Kospi closed 0.3% higher.