Oil prices jumped sharply on Monday after the United States moved to restrict Iranian-linked shipping following the collapse of weekend peace talks, while the dollar strengthened and both equities and sovereign bonds came under pressure.
The U.S. step, designed to increase leverage on Tehran, has put a fragile ceasefire at risk and extended uncertainty around Middle East energy flows, even as market participants hold out cautious hopes for a diplomatic breakthrough.
Brent crude rose 7% to roughly $102 per barrel—up more than 40% since the conflict disrupted traffic through the Strait of Hormuz. Meanwhile, Europe’s STOXX 600 index declined 0.8%, and S&P 500 futures slipped 0.6%.
Government debt markets also weakened. U.S. Treasuries sold off, pushing yields on benchmark 10-year notes up 2 basis points to 4.33%, while European bonds followed, with Germany’s 10-year yield rising 1 basis point to 3.06%.
“Markets, as the week gets underway, are trading in rather ‘textbook’ risk-off fashion, as participants reach once more for the ‘conflict escalation’ playbook,” said Michael Brown, strategist at Pepperstone.
“Losses are seen elsewhere, with equity futures in the red on both sides of the pond, gold rolling over, and govvies facing some headwinds too. All these moves, though, it must be said, are relatively contained in the grand scheme of things,” he added.
The Wall Street Journal reported that President Donald Trump and his advisers are weighing the possibility of limited military action against Iran, although no immediate strikes were reported during Asian trading hours.
Trump said on Sunday that oil and gasoline prices could stay elevated through the U.S. midterm elections in November, acknowledging the potential domestic political consequences of the conflict.
“The market is now largely back to conditions before the ceasefire, except now the U.S. will block the remaining up to (2 million barrels) Iranian-linked flows through the Strait of Hormuz as well,” said MST Marquee analyst Saul Kavonic.
“The key remaining question is if the U.S. 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.”
Dollar strengthens as inflation concerns intensify
In currency markets, the euro fell about 0.3% to $1.1692, while risk-sensitive currencies such as the Australian dollar also edged lower.
The surge in energy prices has prompted investors to reassess the outlook for monetary policy, with expectations shifting toward the possibility that central banks—including the European Central Bank and the Bank of England—may need to tighten policy, reversing earlier assumptions of rate cuts or extended pauses.
Recent U.S. inflation figures showed consumer prices rose at their fastest pace in nearly four years in March, driven largely by higher gasoline costs. Money markets now suggest traders see less than a 20% chance of a Federal Reserve rate cut this year.
In emerging markets, the Hungarian forint rallied strongly, reaching multi-year highs against both the dollar and the euro after Prime Minister Viktor Orbán was voted out of office following 16 years in power, replaced by a centre-right coalition in Sunday’s election.
The outcome is expected to unlock European Union funding flows to Hungary and Ukraine.
“The positive political developments have triggered a powerful rally for the forint,” said MUFG currency strategist Lee Hardman.
“The price action reinforces the forint’s position as one of the best-performing emerging market currencies this year.”
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