Crude oil prices experienced an upswing on Monday amid escalating tensions in the Middle East, raising concerns about inflation and prompting speculation that central banks may need to hike interest rates. Brent crude, the global oil benchmark, saw a rise after a nuclear power plant in the United Arab Emirates was attacked. This incident coincided with a stall in peace talks between the United States and Iran, now in their sixth week of ceasefire. Former President Donald Trump heightened tensions with a social media post 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!”
Brent crude prices climbed by 1.77% to reach $111.16 per barrel early on Monday, marking the highest level in nearly two weeks, before easing to $110 after Iran indicated it had responded to a new U.S. proposal aimed at ending the conflict. Esmaeil Baqaei, Iran’s foreign ministry spokesperson, mentioned that talks were “continuing through the Pakistani mediator” but did not provide further details. Meanwhile, bond markets worldwide exhibited volatility. The yield on the 10-year U.S. Treasury note reached 4.631%, its highest since February 2025, before settling at 4.599%.
In the UK, political uncertainties have also contributed to market fluctuations. The 10-year gilt yield rose to 5.19%, surpassing an 18-year high reached last Friday, before dropping back to 5.15%. Speculation is rife that Prime Minister Keir Starmer might face a leadership challenge from Manchester Mayor Andy Burnham later in the year. This political instability comes as UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the economic ramifications of the Middle Eastern conflict. Mohit Kumar, chief economist at Jefferies, noted concerns among bond investors about a possible “shift to the left” in the UK’s political landscape, suggesting it could lead to increased public spending without fiscal capacity to support it.
Kathleen Brooks, research director at XTB, suggested that UK bond yields might recover this week. She remarked that if the bond markets perceive Burnham as being restrained from high-spending policies, UK yields could attempt a retreat. Brooks stated, “The key test for UK markets will be whether the 10-year yield can fall below the 5% level, and if the 30-year yield is trusting enough of Burnham to back away from 1998-level highs.”
In other global markets, Japan saw its bond yields climb, with the 10-year yield reaching nearly a 30-year peak of 2.8% on Monday as the government prepared to issue new debt to mitigate the economic impact of the Middle East conflict. European stock markets opened lower, with the Stoxx Europe 600 index falling by 0.7%, while the UK’s FTSE 100 index remained relatively stable. In Asia, Japan’s Nikkei index dropped by about 1%, Hong Kong’s Hang Seng index fell 1%, and Shanghai’s SSE Composite slipped 0.1%. However, South Korea’s Kospi index closed 0.3% higher.