Oil surges, Treasury yields hit 19-year high as US-Iran strikes resume

US government borrowing costs reached their highest level since 2007 this week after the Federal Reserve decided to keep its benchmark interest rate unchanged for the fifth consecutive meeting. The yield on the 30-year Treasury bond climbed 14 basis points to nearly 5.24 percent, a move that reflects investor concerns over whether the central bank can contain inflation pressures tied to renewed fighting between the United States and Iran.

Fed Chair Kevin Warsh emphasized that the committee remains committed to its 2 percent inflation target and would not accept any higher implicit goal. He noted that a period of elevated prices had led some Americans to question the bank’s resolve, but he insisted the target remained firm. The decision to pause rate adjustments came as inflation stood at an annual rate of 3.5 percent in June, down from earlier peaks after a brief ceasefire between Washington and Tehran. That pause has since collapsed, with both sides resuming strikes and pushing oil prices higher once more.

Markets reacted sharply to the Fed’s stance. The S&P 500 fell 1.5 percent on Wednesday, while the Dow Jones industrial average dropped 2.2 percent and the Nasdaq declined 1.7 percent. Analysts pointed to uncertainty about how the economy would absorb further price increases linked to the expanding conflict. Senior economist Felix Schmidt at Berenberg observed that Warsh had not fully explained why the Fed chose not to raise rates, though the chair suggested that rising bond yields themselves were already tightening financial conditions across the economy.

The military developments driving these economic shifts began with an Iranian attack on a US base in Jordan that hosts American troops. President Trump responded by promising strong action, and US Central Command carried out strikes on dozens of targets linked to Iran’s Revolutionary Guards Corps over a two-hour period. The United States also joined Saudi Arabia in hitting Iran-backed militias in Iraq, where at least several dozen fighters were reported killed. These exchanges have raised fears that the brief lull in hostilities could give way to wider regional fighting.

Energy companies have recorded immediate gains from the resulting volatility in commodity markets. Shell reported adjusted earnings of 9.84 billion dollars for the second quarter, well above analyst forecasts, marking the company’s strongest quarterly result since 2022. Higher realized prices for oil and gas supported cash flow from operations of 21.4 billion dollars. Chief executive Wael Sawan described volatility as the new normal and credited strong operational performance and trading for the results, while confirming that the firm would continue its 3 billion dollar share buyback program.

The combination of steady monetary policy, renewed geopolitical tension, and rising energy prices illustrates how foreign policy decisions are shaping domestic financial conditions. Investors are watching whether the Fed will need to adjust its approach if inflation reaccelerates, while households face the prospect of higher borrowing costs for mortgages and other long-term loans. The administration’s handling of the Iran conflict will likely remain a central factor in both inflation trends and market stability in the months ahead.