Oil Surge Deepens Market Anxiety as Iran War Raises Supply Risks
Qwenews.com – Escalating conflict around some of the world’s most important energy shipping routes pushed global oil prices sharply higher on Thursday, while rising inflation concerns sent bond yields climbing and US stocks lower.
Brent crude, the international benchmark, gained 6.1% to trade at $107.40 a barrel, its first move above $107 since May. US crude rose 6.2%, reaching $102 per barrel for the first time in the same period. Both prices have returned above $100 this week as fighting has intensified near the Strait of Hormuz and in the Red Sea.
The market reaction reflects growing fears that interruptions to oil production and maritime transport may last longer than initially expected. The Strait of Hormuz is a crucial passage for global crude exports, and heightened attacks in the area have made traders increasingly cautious about the availability and movement of energy supplies.
Conflict Expands Pressure on Energy Routes
The United States and Iran have exchanged strikes, while Iran-backed Houthi forces have targeted Saudi Arabia and heightened tensions around the Bab al-Mandab Strait. The widening set of threats has added fresh uncertainty to energy markets already affected by the war.
“The step up in attacks in the Strait of Hormuz and by the Houthis against Saudi Arabia suggests that Iran and its proxies are trying to regain the initiative in the war,” Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said in a note.
“This could set back the recovery in oil output in the Gulf and raises the risk that global energy prices rise even further in the coming weeks,” Tuvey said.
For consumers and businesses, the consequences extend well beyond the headline price of a barrel of crude. Oil must be refined into products such as gasoline, diesel and jet fuel before it reaches most users. When disruptions affect crude deliveries, refining capacity or shipping lanes, the resulting pressure can spread through transport, freight and household energy costs.
Diesel has become an especially visible concern. It powers much of the trucking, shipping and industrial equipment used to move goods through the economy. AAA data showed the national average diesel price reaching a record $5.98 per gallon on Thursday. Higher diesel costs can raise operating expenses for freight carriers and suppliers, potentially affecting prices across a broad range of goods.
Longer-Lasting Disruption Now Built Into Forecasts
S&P Global Energy has revised its outlook for the region, saying it no longer expects Middle Eastern oil production to recover to pre-war levels by the end of next year. It has also dropped the assumption that the conflict will have a clear endpoint or that conditions in the Strait of Hormuz will return to normal by the end of 2027.
The firm now anticipates oil prices largely remaining between $80 and $100 per barrel through next year. Thursday’s move above that range underlines how quickly market conditions can shift when military developments threaten production or shipping.
“It is adjusting to the new normal defined by unresolved conflict and persistent Maritime risk,” Jim Burkhard, global head of crude oil research at S&P Global Energy, said in the report.
President Donald Trump offered a contrasting view on Wednesday night, predicting a rapid end to the conflict and lower energy prices after the November 3 election.
“Prices right after this very important election on November 3rd will be plummeting,” Trump said. “The war will be over very shortly after the election.”
Inflation Fears Hit Bonds and Stocks
The oil spike arrived alongside new evidence that headline wholesale inflation accelerated in August, intensifying investor worries that higher energy costs could complicate the Federal Reserve’s next policy decision.
The sell-off in government bonds strengthened on Thursday. The benchmark 10-year Treasury yield jumped nine basis points to 4.92%, its highest point since October 2023. Bond yields rise as bond prices fall, and the move signals that investors are demanding greater returns amid concerns over inflation and the prospect of higher interest rates.
The Treasury Department announced on Wednesday that it would repurchase up to $6 billion in bonds on Thursday, an action intended to help ease market pressure. But many investors saw the amount as too small to alter the broader direction of yields.
“Treasury is figuratively shooting a BB gun at an elephant,” Mike O’Rourke, chief market strategist at JonesTrading, said in a note.
Markets increased their expectations for a Federal Reserve rate increase at its meeting next week. CME FedWatch showed traders assigning a 72% probability to a hike, compared with 61% on Wednesday and 49% one week earlier.
US shares also continued to retreat. Major indexes fell for a fourth consecutive day, with the S&P 500 down 0.5%. The index has lost more than 2.5% since its August 13 record high.
With corporate earnings season nearing its end, investor attention has shifted toward the war, the risk of persistent energy inflation, climbing borrowing costs and the Federal Reserve’s likely response. The immediate question is no longer simply whether crude can stay above $100 a barrel, but whether broader fuel costs and transport expenses will keep pressure on prices throughout the economy.
Claudio Galimberti, chief economist at Rystad Energy, said the sharp rise in refined fuels is more troubling than the increase in crude itself because households, businesses and industry depend directly on products such as diesel.
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