Oil prices surged on Monday after the United States moved to enforce a blockade on Iranian-linked shipping following the breakdown of weekend peace negotiations, while the dollar strengthened and both equities and bonds came under pressure.
The U.S. action, intended to increase pressure on Tehran, has left a fragile ceasefire in jeopardy and prolonged uncertainty over Middle Eastern energy exports, even as market sentiment reflects cautious hopes for a resolution.
Brent crude climbed 7% to around $102 per barrel—marking a gain of more than 40% since the conflict disrupted traffic through the Strait of Hormuz. At the same time, Europe’s STOXX 600 index declined 0.8%, while S&P 500 futures slipped 0.6%.
Government bonds also weakened. U.S. Treasuries fell, pushing yields on benchmark 10-year notes up by 2 basis points to 4.33%. European bonds followed suit, with Germany’s 10-year yield rising 1 basis point to 3.06%.
“Markets, as the week gets underway, are trading in rather ‘textbook’ risk-off fashion, as participants reach once more for the ‘conflict escalation’ playbook,” said Michael Brown, strategist at Pepperstone.
“Losses are seen elsewhere, with equity futures in the red on both sides of the pond, gold rolling over, and govvies facing some headwinds too. All these moves, though, it must be said, are relatively contained in the grand scheme of things,” he added.
The Wall Street Journal reported that President Donald Trump and his advisers are considering limited strikes on Iran, although no immediate military action was reported during the Asian trading session.
Trump said on Sunday that oil and gasoline prices could remain elevated through the U.S. midterm elections in November, acknowledging the potential domestic political implications of the conflict.
“The market is now largely back to conditions before the ceasefire, except now the U.S. will block the remaining up to (2 million barrels) Iranian-linked flows through the Strait of Hormuz as well,” said MST Marquee analyst Saul Kavonic.
“The key remaining question is if the U.S. renews strikes on Iran, raising the risk of strikes on energy infrastructure across the region which could have a further lasting impact beyond the duration of the war.”
Dollar rises as inflation pressures build
In currency markets, the euro weakened about 0.3% to $1.1692, while risk-sensitive currencies such as the Australian dollar also edged lower.
The sharp increase in energy prices has led investors to reconsider monetary policy expectations, with some now anticipating that central banks—including the European Central Bank and the Bank of England—may lean toward tightening policy, a reversal from earlier expectations of rate cuts or prolonged pauses.
Recent U.S. inflation data showed consumer prices rose at their fastest pace in nearly four years in March, driven largely by a surge in gasoline costs. Money markets now indicate that traders see less than a 20% probability of the Federal Reserve cutting rates this year.
In emerging markets, the Hungarian forint strengthened significantly, reaching multi-year highs against both the dollar and the euro after Prime Minister Viktor Orbán lost power following 16 years in office, replaced by a centre-right coalition in Sunday’s election.
The outcome is expected to unlock European Union funding flows to Hungary and Ukraine.
“The positive political developments have triggered a powerful rally for the forint,” said MUFG currency strategist Lee Hardman.
“The price action reinforces the forint’s position as one of the best-performing emerging market currencies this year.”