Oil price jumps as US-Iran clashes raise odds of interest rate rises | Global economy

After the USA continued its third night military attack on Iran, oil and natural gas prices rose and interest rate hike expectations increased in Europe.

Brent crude oil, the international benchmark for oil prices, rose 4.6% to $87.08 per barrel on Tuesday.

The price had risen as much as 10 percent on Monday after Donald Trump announced that he would impose a blockade on Iranian ships, and US attacks pushed the levels even higher on Tuesday.

Gas prices rose; The Dutch natural gas contract for August delivery (European standard) increased by nearly 3% to 52.8 euros per megawatt hour; This was the highest level since the beginning of April.

The UK’s natural gas contract for August delivery rose 3.3% to 128.27 pa thermal, the highest level in more than three months.

Fears of high inflation due to the rise in oil prices have increased expectations for interest rate hikes by the Bank of England and the European Central Bank.

For the first time in a month, financial markets are predicting a quarter-point rate hike in the UK in September, likely to be followed by another increase at the end of the year. Investors also predict the ECB will raise interest rates by a quarter point in September and another increase at the end of December.

At the start of the month, amid a fragile ceasefire between the US and Iran, swaps for the Bank of England and the ECB were priced below a quarter point increase.

The market fluctuations came as Trump said the Strait of Hormuz would remain open “with or without Iran” but that the United States would begin charging fees to ships passing through the waterway. A 20% fee will be charged “for all necessary expenses” to ensure the safety and security of ships.

The apparent reversal of policy has fueled fears that there could be further upward pressure on oil prices, contributing to high inflation. Oil was trading at $72.48 per barrel before the US-Israeli attack on Tehran in late February, and reached a peak of $120 in April.

Research director Kathleen Brooks The latest blockade of the Strait of Hormuz, through which a fifth of the world’s oil supply normally passes, lasted more than 60 days, the XTB broker said.

“The possibility of further clashes and a new blockade means that traffic in the strait is almost at a standstill,” he said. “Only six cargo ships passed through the strait on Sunday, a trickle compared to previous flows in recent weeks. When the supply chain is clogged, this is what maintains upward pressure on oil prices.”

UK government bond yields rose to their highest level since May, while the 10-year gold yield rose five basis points to 5.02%. The yield on the two-year bond, which is particularly sensitive to interest rate expectations, rose eight basis points to 4.45%, its highest level since May 19.

Stock markets also fell on Tuesday. Britain’s leading FTSE 100 index fell 0.4% despite gains by two of its biggest constituents, oil companies BP and Shell, of 2.4% and 1.7% respectively.

The Stoxx Europe 600, which tracks the continent’s largest companies, fell 0.5 percent.

In Asia, stocks were more mixed thanks to a recovery in technology stocks. South Korea’s Kospi and Japan’s Nikkei 225 rose 07%, while China’s Shanghai Composite index rose 1.4%.