Oil prices increased on Monday as escalating tensions in the Middle East raised concerns about inflation and the potential need for central banks to hike interest rates. Brent crude, the global oil benchmark, saw a rise following an attack on a nuclear power plant in the United Arab Emirates. This development occurred amid stalled peace negotiations between the US and Iran, now in their sixth week of ceasefire. Former President Donald Trump expressed urgency on social media, urging Iran to move quickly in the talks.
Brent crude rose by up to 1.77% to reach $111.16 per barrel, marking its highest level in almost two weeks before settling back to $110 after Iran reportedly responded to a new US proposal aimed at resolving the conflict. Iran’s foreign ministry spokesperson, Esmaeil Baqaei, mentioned continued exchanges through a Pakistani mediator, though details were sparse. Meanwhile, global bond markets experienced volatility, with the 10-year US Treasury yield climbing to 4.631%, its highest since February 2025, before easing to 4.599%.
In the UK, political instability contributed to fluctuations in government bonds. The 10-year gilt yield surged to 5.19%, surpassing an 18-year high reached previously, before dipping to 5.15%. Speculation about a potential leadership challenge to Prime Minister Keir Starmer by Manchester Mayor Andy Burnham added to the uncertainty. As UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the Middle East conflict’s economic impacts, concerns about UK fiscal policy and spending were highlighted by market analysts.
Economists expressed apprehension over the UK’s fiscal outlook, with some suggesting that a shift towards higher public spending could strain public finances further. Bond investors remained wary of the political climate, with potential shifts in policy under Burnham’s leadership raising questions about fiscal discipline. Market observers speculated on the possibility of recovery in UK bond yields if political concerns were mitigated.
Globally, stock markets reacted to these developments with declines in Europe and Asia. The Stoxx Europe 600 index fell by 0.7%, while the UK’s FTSE 100 remained relatively stable. In Asia, Japan’s Nikkei decreased by about 1%, and Hong Kong’s Hang Seng index also dropped 1%, with Shanghai’s SSE Composite slipping 0.1%. Conversely, South Korea’s Kospi managed a slight increase, closing 0.3% higher. Japan saw a significant rise in bond yields, with the 10-year yield reaching nearly 2.8%, the highest in almost three decades, as the government prepared to issue new debt to offset the economic impact of the Middle East conflict.