Global oil prices experienced a sharp 5% increase on Thursday, with Brent crude reaching $105.30 a barrel. This rise has triggered a widespread sell-off across international stock and bond markets, as investors fear that climbing energy costs will fuel higher inflation and force central banks to increase interest rates.
The market volatility follows a report from The Atlantic stating that the White House has requested the Pentagon to prepare options for potential military strikes against Iran before the upcoming US midterm elections. While unnamed officials in Donald Trump’s administration indicated that the specific targets and scale of any such operation remain under debate, the report has weakened hopes that the administration would avoid escalating the conflict before next month's polls. The ongoing US-Israeli war against Tehran is now in its eighth month, and attacks on tankers in the Strait of Hormuz have reached their highest levels of the conflict, further restricting traffic and deepening supply concerns.
Energy markets are also grappling with a production squeeze in the Gulf of Mexico, where Tropical Storm Isaias has strengthened into the first hurricane of the Atlantic season. Major energy companies Shell and Chevron confirmed they are shutting down production as the storm approaches, with landfall forecast for Friday or Saturday. Adding to the inflationary pressure, the Danish shipping group Maersk announced on Thursday that it is increasing its emergency fuel surcharge on all import deliveries and export collections.
The resulting market pressure has been particularly acute in the UK, where the yield on the 10-year government bond rose by six basis points to 5.515%, the highest level since July 2007. The 30-year bond yield, a benchmark for long-term borrowing, rose by three basis points to 6.0117%, after hitting 6.036% on Wednesday—the highest level since January 1998. These rising borrowing costs place significant pressure on John Healey as he prepares to deliver his first budget on 28 October.
Broader financial indicators reflected the global unease. The Stoxx Europe 600 index dropped 0.9%, while the UK’s FTSE 100 slipped 0.4% in early trading. Bond yields rose across major economies; the US 10-year treasury yield climbed five basis points to 5.331%, the German 10-year yield rose two basis points to 3.504%, and the French 10-year yield increased by six basis points to 4.931%, nearing its 24-year high of 4.994% recorded last week.
