Oil Prices Surge Past $107 After Trump Rejects Iran Peace Deal, Signals Renewed Strikes
President Trump's rejection of a ceasefire proposal and expectation of post-midterm strikes are driving crude prices higher, exacerbating inflation concerns.
Oil prices surged on Monday, with Brent crude futures climbing 2.6% to $107.02 a barrel and West Texas Intermediate rising 2.7% to $94.91. The market reacted to news that President Trump rejected an Iranian peace proposal and anticipates resuming U.S. strikes after the November midterm elections.
This development poses a threat of sustained higher inflation. National average gasoline prices have already reached $4.48 a gallon, a significant increase from the pre-war average of $2.98 in February and $3.13 in September of the previous year.
Elevated energy costs have been a primary driver of inflation in recent months, with economists warning of potential spillover effects into other sectors, including food and apparel.
The financial markets reflected these concerns, with the Dow Jones Industrial Average falling 349 points, or 0.7%, in early Monday trading. The S&P 500 and Nasdaq also experienced declines, dropping 0.8% and 0.9% respectively. Treasury yields edged higher amid worries that a protracted conflict in the Middle East could keep inflation elevated, potentially leading the Federal Reserve to implement further interest rate hikes.
The U.S. 10-year Treasury yield reached 5.263%, and the 30-year Treasury yield rose to 5.579%.
Nic Puckrin, cross-asset analyst and founder of Coin Bureau, noted that rising energy costs amid the conflict in Iran no longer appear to be a temporary shock. He pointed to dwindling refined-product supply, the Strategic Petroleum Reserve being at its lowest level since 1982, and an increasingly tense political situation as the midterms approach. The upcoming cold weather in the Northern Hemisphere and the significant U.S. debt further contribute to the outlook, with yields above 5% potentially becoming the new normal.
On Saturday, President Trump confirmed his rejection of an Iranian proposal to reopen the Strait of Hormuz, a crucial route for energy supplies. Iran's offer would have involved unfreezing assets, ending port blockades, and lifting oil sanctions in exchange for reopening the shipping route and resuming nuclear talks within seven days. Trump indicated that the proposed deal was not acceptable.
Reports suggest that Trump also informed aides of his intention to resume bombing Iran after the midterm elections, a shift from his earlier public statements anticipating a swift resolution to the conflict and a subsequent drop in oil prices.
President Trump is also reportedly considering a ban on diesel exports to combat soaring prices. This comes as Iranian Foreign Minister Abbas Araghchi stated that his country is prepared for a "doomsday war" with the U.S., though he maintained that a peace deal is preferable.
Araghchi described Iran's seven-day ceasefire proposal as "very reasonable." Meanwhile, European nations face a particularly precarious situation heading into winter due to their reliance on imported diesel and LNG, with gas inventories already below seasonal norms and demand expected to rise sharply.
