Iran conflict puts fresh pressure on global markets

09:58

By: Azzat Manal

Iran conflict puts fresh pressure on global markets

Global financial markets came under renewed pressure on Tuesday as the escalation of military tensions in the Middle East sent energy prices higher and revived concerns over inflation, borrowing costs and the outlook for the world economy.

The latest market movements followed new US strikes against Iran, described by US President Donald Trump as large-scale and powerful. Iranian authorities, meanwhile, announced the launch of a military operation in response to what they called American aggression.

The renewed confrontation has quickly increased risk premiums across energy markets. After a period of relative calm, during which investors had focused on Washington’s economic measures, the return to military escalation has raised fears of disruptions to energy supplies and international trade.

US West Texas Intermediate crude rose 5.20% to $90.22 a barrel, reaching its highest level since late July. Brent crude, the international benchmark, gained 4.60% to $94.65 a barrel.

Concerns over shipping through the Strait of Hormuz added to market uncertainty. Two oil tankers were reportedly struck by unidentified projectiles while leaving the strategic waterway, according to a Greek maritime agency. The incidents weakened hopes that navigation through the strait could soon return to normal.

European gas markets also reacted sharply. Gas prices climbed to €74.20 per megawatt-hour, their highest level since January 2023. Lower European gas inventories and preparations to secure supplies ahead of the winter season have added to concerns over the potential impact of prolonged regional tensions.

The pressure extended beyond commodities. Government bond yields increased as investors demanded higher returns to compensate for the risks associated with persistent inflation and weaker economic activity.

France’s 10-year government bond yield reached its highest level since 2008, while Germany’s equivalent climbed to its highest point since 2011. British borrowing costs also moved to levels not seen for several years, while Japan’s 10-year yield reached its highest level since 1996.

The developments came as eurozone inflation accelerated in August to its highest rate in three years, adding to uncertainty over the European Central Bank’s future monetary policy. Investors are increasingly watching how higher energy costs could feed into consumer prices and complicate efforts to control inflation.

In the United States, the escalation has also clouded expectations surrounding the Federal Reserve’s September meeting. Higher energy prices could reinforce inflationary pressures and influence the central bank’s approach to interest rates.

Equity markets reflected the growing uncertainty. The Dow Jones Industrial Average fell 0.79%, while the Nasdaq declined 1.03%. Major European markets, including Paris, Frankfurt, London and Milan, also moved lower as investors assessed the potential economic consequences of the renewed conflict.

The latest developments underline how quickly geopolitical tensions in the Middle East can spread through global financial markets. Energy prices, inflation expectations, government borrowing costs and investor sentiment remain particularly sensitive to any threat to oil and gas supplies or to maritime traffic through key regional routes.