Oil prices experienced a surge on Monday as heightened tensions in the Middle East stoked fears of inflation and speculation about potential interest rate hikes by central banks. Brent crude, the global oil benchmark, saw an increase following a reported attack on a nuclear facility in the United Arab Emirates. This event coincided with a breakdown in peace negotiations between the United States and Iran, now in their sixth week of a ceasefire. Former President Donald Trump added to the tensions with a social media post warning Iran of the urgency to act, 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!”
This geopolitical strain pushed Brent crude up 1.77% to $111.16 per barrel, marking its highest point in nearly two weeks before it settled slightly at $110. The slight drop followed Iran’s announcement that it had responded to a new U.S. proposal to resolve the conflict, as confirmed by Iran’s foreign ministry spokesperson, Esmaeil Baqaei. Nonetheless, the overall uncertainty kept global bonds on edge, with the 10-year U.S. Treasury yield reaching 4.631%, its peak since February 2025, before easing to 4.599%.
In the United Kingdom, the bond market reflected similar volatility, with the 10-year gilt yield peaking at 5.19%, surpassing its recent 18-year high, before moderating to 5.15%. This instability is partly attributed to domestic political uncertainties, as speculation mounts over a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham. The situation was further complicated by discussions among G7 finance ministers, including UK Chancellor Rachel Reeves, in Paris, focusing on the economic ramifications of the Middle Eastern conflict.
Concerns about a shift in UK fiscal policy under a potential Burnham leadership have also weighed on investor sentiment. Mohit Kumar, Jefferies’ chief economist, highlighted worries about increased public spending in a fiscally constrained environment, noting that further tax hikes might prove counterproductive. Meanwhile, Kathleen Brooks, research director at XTB, suggested that if market fears over Burnham’s policies ease, UK bond yields might stabilize, especially if the 10-year yield can dip below the 5% threshold.
Beyond the UK, bond yields in Japan saw a notable increase, with the 10-year yield climbing to a near 30-year high of 2.8% as the government prepared new debt issuance to mitigate the economic impact of the Middle Eastern conflict. European stock markets opened lower on Monday, with the Stoxx Europe 600 index dropping by 0.7%, while the UK’s FTSE 100 remained steady. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index each fell by 1%, whereas South Korea’s Kospi managed a slight increase of 0.3%.