Oil price jumps as US-Iran clashes raise odds of interest rate rises

Oil prices rise following US military strikes on Iran, lifting rate expectations

Oil and gas prices increased and expectations for higher interest rates in Europe grew after the United States conducted additional military strikes against Iran. Brent crude, the international benchmark, recorded gains on Tuesday following earlier movements the previous day. The price had already moved higher after earlier announcements related to Iranian shipping routes.

Gas prices also advanced. The Dutch natural gas contract for August delivery, used as a European benchmark, rose, while the UK equivalent contract showed similar upward movement. These changes occurred alongside concerns that higher energy costs could contribute to inflation, prompting traders to adjust forecasts for central bank policy.

Market pricing shifted to reflect a possible quarter-point increase in UK rates by September, with further adjustments possible later in the year. Comparable shifts appeared in expectations for the European Central Bank. Earlier in the month, when a ceasefire remained in effect between the United States and Iran, such rate increases had been priced at lower probabilities.

The developments followed statements from US officials regarding the Strait of Hormuz. Reports indicated that traffic through the waterway, which normally carries a significant share of global oil supply, had declined sharply. Research director Kathleen Brooks at broker XTB noted that only a limited number of cargo ships passed through the strait on Sunday compared with recent weeks, adding that disruptions in supply chains can sustain upward pressure on prices. The previous instance of restricted access to the strait lasted more than 60 days.

UK government bond yields moved higher, with the 10-year gilt yield reaching levels last seen in May and the two-year yield also advancing. The two-year gilt is viewed as particularly responsive to interest rate expectations.

Equity markets declined in Europe. The FTSE 100 index fell modestly even as shares in BP and Shell advanced. The Stoxx Europe 600 index tracking major continental companies also posted losses. In Asia, major indices showed mixed results, with gains in technology-related shares supporting South Korea’s Kospi, Japan’s Nikkei 225, and the Chinese Shanghai Composite.

US Central Command confirmed the strikes as part of ongoing operations. Earlier oil prices had traded near $72 before the initial US and Israeli actions against targets in Tehran in late February and later reached higher levels in April. The current market reaction reflects both the direct impact of the strikes and uncertainty over future access to key shipping routes.