Crude oil prices moved sharply higher at the start of the week after Israel launched airstrikes targeting central and western Iran in response to reported missile attacks.

Iranian state media reported explosions in several cities, including Isfahan, Tabriz, and Tehran, adding to concerns that the conflict could intensify despite ongoing diplomatic efforts aimed at maintaining a ceasefire.

Brent crude rose $3.50 to $96.59 per barrel, while West Texas Intermediate crude gained $3.48 to reach $94.02 per barrel.

The latest developments have renewed fears of supply disruptions across the region, particularly as negotiations aimed at extending a ceasefire between the United States and Iran remain unresolved.

Energy Markets Focus on Supply Risks

Energy traders remain highly sensitive to developments in the Middle East due to the region’s critical role in global oil production and transportation.

Concerns have persisted that continued hostilities could further disrupt shipping activity through the Strait of Hormuz, one of the world’s most important energy transit routes.

While recent diplomatic discussions offered hopes for de-escalation, the latest military exchanges have increased uncertainty surrounding the near-term outlook for global oil supplies.

The rise in crude prices also adds pressure to inflation expectations at a time when central banks remain focused on price stability.

Global Markets Move Lower

The surge in oil prices contributed to broad weakness across Asian equity markets.

South Korea’s Kospi index fell 6.8%, led by declines in major technology companies. Samsung Electronics dropped 7%, while SK Hynix lost 3.3%.

Taiwan’s Taiex declined 3.8%, Hong Kong’s Hang Seng Index fell 1.3%, and China’s Shanghai Composite Index lost 1.1%.

Japan’s Nikkei 225 dropped 4.2% despite updated economic data showing annualized first-quarter growth of 1.8%.

The widespread declines reflected investor concerns over geopolitical uncertainty, inflation risks, and the prospect of tighter monetary policy.

Wall Street Faces Pressure from Rates and Inflation

U.S. markets ended the previous week sharply lower following a stronger-than-expected employment report that reinforced expectations for a more hawkish Federal Reserve.

The S&P 500 fell 2.6%, marking its largest one-day decline since October. The Nasdaq Composite dropped 4.2%, while the Dow Jones Industrial Average lost 1.4%.

The Labor Department reported that the U.S. economy added 172,000 jobs in May, significantly exceeding expectations and highlighting continued labor market resilience.

The strong employment data prompted investors to reassess interest-rate expectations, with markets increasingly pricing in the possibility of future Federal Reserve rate hikes.

Treasury Yields Continue Rising

Bond markets also reacted to the stronger economic data and rising inflation concerns.

The yield on the benchmark 10-year U.S. Treasury rose to 4.54%, while the two-year Treasury yield climbed to 4.16%.

Higher oil prices have added another layer of inflation risk, potentially complicating the Federal Reserve’s efforts to bring inflation back toward its long-term target.

Market participants are increasingly focused on whether elevated energy costs could prolong inflationary pressures and delay any future easing in monetary policy.

Currency Markets Remain Stable

In foreign exchange trading, the U.S. dollar strengthened slightly against the Japanese yen, rising to 160.35 yen.

The euro also edged higher, trading at $1.1530 against the dollar.

Currency markets remain closely tied to shifting expectations surrounding global interest rates, economic growth, and geopolitical developments.

Outlook

Oil markets remain highly sensitive to developments between Iran and Israel, with investors closely monitoring whether diplomatic efforts can prevent a broader regional conflict.

Should tensions continue to escalate, crude prices could remain elevated, increasing inflation pressures globally and creating additional challenges for central banks already grappling with resilient economic activity and persistent price growth.