Crude oil prices experienced an uptick on Monday as escalating tensions in the Middle East fueled inflation concerns and speculation that central banks might be compelled to raise interest rates. Brent crude, the global oil benchmark, saw an increase of up to 1.77%, reaching $111.16 per barrel—its highest in nearly two weeks—following a reported attack on a nuclear facility in the United Arab Emirates. The rise in oil prices coincided with stalled peace negotiations between the United States and Iran, now in their sixth week. Former President Donald Trump added to the tension by warning Iran via social media that time was running out for them to act.
Despite the initial surge, Brent crude prices moderated to $110 per barrel after Iran indicated it had responded to a new U.S. proposal aimed at resolving the conflict. Iranian Foreign Ministry spokesperson Esmaeil Baqaei noted that discussions were ongoing through a Pakistani mediator, though he did not elaborate further. Meanwhile, global bond markets displayed volatility, with the benchmark 10-year U.S. Treasury yield reaching 4.631%, its highest since February 2025, before settling at 4.599%.
In the United Kingdom, the 10-year gilt yield climbed to 5.19%, surpassing a previous 18-year high reached on Friday, before easing to 5.15%. This fluctuation in UK government bonds is partly attributed to political uncertainties, as speculation mounts over a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham. The bond market’s instability coincides with a meeting of G7 finance ministers, including UK Chancellor Rachel Reeves, in Paris to address the economic fallout from the Middle East conflict.
Market analysts express concern over a potential shift in the UK’s fiscal approach. Mohit Kumar, Jefferies’ chief economist, pointed out investors’ worries about increased public spending without the fiscal capacity to support it, considering that tax rates are already high. Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover if the market perceives Burnham’s fiscal policies as manageable.
Elsewhere, Japan’s bond yields saw an increase, with the 10-year yield hitting a nearly 30-year high of 2.8% as the government prepared to issue new debt to mitigate the economic impact of the Middle East crisis. European stock markets opened on a downward note, with the Stoxx Europe 600 index falling by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei declined by about 1%, Hong Kong’s Hang Seng index dropped 1%, and Shanghai’s SSE Composite slipped 0.1%. Meanwhile, South Korea’s Kospi closed with a slight gain of 0.3%.