Global oil prices surged to nearly $80 a barrel, and stock and bond markets experienced sell-offs Tuesday, following statements from U.S. President Donald Trump indicating the peace deal with Iran was concluded. Brent crude rose as much as 7 percent to $79.26 per barrel in reaction to a recent escalation of hostilities in the Persian Gulf.
The market turmoil extended to major stock indices, with the FTSE 100 plunging over 180 points, or nearly 2 percent, to below 10,500. Similar declines were observed across Europe, with Germany's Dax and France's Cac 40 each dropping by 2 percent. U.S. bond yields also climbed, with 10-year UK gilts reaching a seven-week high of 4.965 percent.
This market volatility revives concerns that Middle East instability could lead to higher inflation. A similar pattern emerged in February when U.S. and Israeli forces attacked Iranian targets, prompting Iran to close the Strait of Hormuz. During that period, Brent crude prices jumped from a pre-conflict level of $72 to over $126 in April, contributing to increased petrol and energy costs and fueling inflation fears. These concerns subsequently led to expectations of higher interest rates, driving up mortgage costs.
A subsequent memorandum of understanding between the U.S. and Iran and a ceasefire had allowed traffic through the Strait of Hormuz to resume, easing inflation and interest rate fears. However, recent days have seen a resurgence in conflict, with attacks on tankers in the strait leading to U.S. strikes on Iranian targets. Iran responded by reportedly targeting U.S. military sites in Bahrain and Kuwait.
When questioned by reporters at a NATO summit in Ankara about whether the situation meant the peace deal was over, Trump stated, "To me, I think it’s over. I don’t want to deal with them. They’re scum. They’re sick people. They’re led by sick people. As far as I’m concerned, it’s just a waste of time dealing with them."
The renewed hostilities have also raised safety and security concerns around the Strait of Hormuz, a critical waterway through which approximately one-fifth of the world's oil and gas normally passes. Shipping data indicated that at least four oil and gas tankers had diverted course rather than attempt to navigate the strait.
Market analysts noted the sensitive timing of the renewed tensions. Chris Beauchamp, chief market analyst at IG, commented that the potential restart of hostilities could not come at a worse time for the UK economy, particularly amidst uncertainty surrounding a change in Prime Prime Minister and upcoming fiscal decisions. Neil Wilson, UK investor strategist at Saxo Bank, added that while sentiment was already fragile following recent military exchanges, Trump's remarks significantly amplified market concerns about further escalation and a potential return to conditions preceding the memorandum of understanding.