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Oil markets react to rising Middle East tensions
Global oil prices climbed on Monday after US President Donald Trump warned Iran that time was running out to reach a peace agreement, as negotiations between the two nations remain deadlocked.
Brent crude and US oil prices rise sharply
Brent crude, the international benchmark, increased by 1.7% to $111.13 per barrel, while US-traded oil rose 2.1% to $107.62. The spike follows Iran's closure of the Strait of Hormuz, a critical shipping route for nearly a fifth of the world's oil and liquefied natural gas (LNG) supplies, in retaliation for US and Israeli military strikes that began on 28 February.
Trump's warning and Iran's response
In a social media post, Trump declared, "They better get moving, FAST, or there won't be anything left of them. TIME IS OF THE ESSENCE!" His remarks echoed earlier threats, including a warning that a "whole civilisation" could face destruction if Tehran failed to agree to a peace deal. A ceasefire announced in early April has since been described by Trump as being on "massive life support" after he rejected Iran's demands as "totally unacceptable."
Iranian state-affiliated media reported that Washington had not offered any meaningful concessions in response to Tehran's latest proposals. The semi-official Mehr news agency warned that the lack of US compromise could lead to a "negotiation impasse."
Military options on the table
According to Axios, Trump is scheduled to meet with his top national security advisers on Tuesday to discuss potential military actions against Iran.
Bond yields rise amid inflation fears
Government borrowing costs surged across major economies as investors grew increasingly concerned about inflation. The yield on the 10-year US Treasury note, a key benchmark, reached 4.63%, its highest level in over a year. Japanese bond yields also spiked, with the 30-year government bond hitting a record 4.2% and the 10-year yield climbing to 2.8%, its highest since October 1996. Eurozone bond yields followed the upward trend.
Reuters reported that Japan plans to issue additional debt to fund an extra budget aimed at mitigating the economic impact of the ongoing conflict. Meanwhile, G7 finance ministers are currently meeting in Paris to address global economic challenges.
"I always worry, that's my job,"
European Central Bank President Christine Lagarde, responding to questions about the bond market sell-off
Economic fallout from the conflict
Claudio Galimberti, chief economist at Rystad Energy, told the BBC that the situation was "very dire" and warned of a "summer of pain" unless the Strait of Hormuz is reopened. Higher oil prices have already driven up fuel costs for businesses, including airlines preparing for the peak holiday season.
Ryanair, Europe's largest low-cost carrier, reported its annual results on Monday, revealing a 41% increase in profits to €2.26 billion (£2 billion) and an 11% rise in sales to €15.5 billion for the year ending in March. However, the airline cautioned that the outlook remained uncertain due to the Iran conflict and the ongoing war in Ukraine.
Ryanair noted that while it had secured contracts to lock in prices for 80% of its jet fuel needs, the cost of the remaining 20% had "spiked due to the Middle East conflict."
Regional escalation raises concerns
Iran has intensified attacks on neighbouring countries, including Israel, Bahrain, and the United Arab Emirates (UAE). On Sunday, the UAE reported a drone strike near its Barakah Nuclear Power Plant, describing the incident as a "dangerous escalation."
The UAE's defence ministry stated that three drones had approached from the "western border direction." While two were intercepted, the third struck an electrical generator outside the plant's inner perimeter, causing a fire. Authorities confirmed no injuries or radiological safety risks, though investigations into the source of the attack are ongoing.
