Oil surges as failed US-Iran talks shake global markets
Brent jumps above US$102 as US-Iran talks end in stalemate, dragging stocks lower, lifting the dollar and reviving inflation fears
Oil prices led a broad market jolt on Monday after the collapse of US-Iran peace talks reignited fears over Middle East energy supplies and rattled investors across asset classes.
Benchmark Brent crude futures opened about 7.5% higher at US$102.37 a barrel, as the failure of negotiations left a fragile ceasefire in doubt and offered no clear path to easing the pressure on regional exports. Iran has effectively closed the Strait of Hormuz since the war began in late February, choking off a route that carries about 20% of the world’s daily energy supplies. The disruption has already driven oil prices up by more than 30%.
The fallout quickly spread beyond energy markets. Asian stocks were set to fall, while S&P 500 futures dropped about 1.1% in early trade. The dollar also gained ground as investors sought safety, while the euro slipped about 0.5% to US$1.1672.
Marathon talks in Islamabad ended in stalemate, and US President Donald Trump said on Sunday that the US Navy would itself begin blockading the Strait of Hormuz. The renewed pressure on oil added to fears of another wave of inflation, which in turn weighed further on bond markets.
US Treasury futures fell in early trade, while gold dropped almost 2%, extending losses as investors locked in profits from its long pre-war rally.
“This is an absolute unwinding of any optimism heading into the peace talks into that play of dollar: safe-haven; oil jumping and selling out of everything else,” said Fiona Cincotta, senior market analyst at City Index.
“On the other hand, we have seen the markets over-exaggerate sometimes. And I think especially around this scenario, the market is struggling to really price it correctly, because there is so much uncertainty, so many unknowns.”
By early Monday, many asset prices had been dragged back to around the levels seen in the middle of last week, before the United States and Iran struck a two-week ceasefire deal.
“The market is now largely back to conditions before the ceasefire, except now the US will block the remaining up to 2 million barrels of Iranian-linked flows through the Strait of Hormuz as well,” said Saul Kavonic, an analyst at MST Marquee in Sydney.
“The key remaining question is if the US 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.”
Risk-sensitive currencies also came under pressure. The Australian dollar fell 0.7%, while sterling lost 0.5%. The dollar rose 0.3% to 159.78 yen.
With inflation expectations rising again, investors have begun pricing in the possibility that several central banks, including the European Central Bank and the Bank of England, could tilt towards raising interest rates this year. That marks a sharp reversal from pre-war expectations for cuts or steady rates.
Global equities ended last week near their highest since early March on hopes that Washington and Tehran were moving towards some kind of resolution. Even so, they remain 2% below where they stood before the war broke out.
Trump also said on Sunday that oil and petrol prices could remain high through November’s midterm elections, in a rare acknowledgement of the war’s potential political fallout.
