Benchmark crude prices jumped significantly, with Brent rising 5.8% to settle at $114.44 per barrel, while US West Texas Intermediate (WTI) climbed 4.4% to $106.42. The rally came after Donald Trump pledged that the US Navy would act to reopen the vital shipping lane, marking the most serious escalation since a ceasefire was declared weeks ago.
The Strait of Hormuz, a critical chokepoint handling roughly 20% of global oil and gas shipments, has faced sustained disruption for nearly two months, intensifying fears of supply shortages and prolonged inflationary pressure.
Stocks Slide as Energy Shock Spreads
Wall Street reacted negatively to the surge in oil prices. The Dow Jones Industrial Average fell 1.13%, while the S&P 500 dropped 0.41% and the Nasdaq Composite slipped 0.19%.
Global equities also edged lower, with broader indices outside Japan declining. In Europe, markets were further pressured after Trump signaled higher tariffs on European vehicles, dragging the STOXX 600 index down by nearly 1%.
Central Banks Face Inflation Dilemma
Rising energy costs have complicated the outlook for global monetary policy. Investors are increasingly abandoning expectations of interest rate cuts by the Federal Reserve this year, while also pricing in potential tightening by the European Central Bank and the Bank of England.
Bond yields rose in response, with the benchmark US 10-year Treasury yield climbing to 4.438%, reflecting heightened inflation expectations tied to sustained high oil prices.
Currency Volatility Adds to Uncertainty
Currency markets remained unsettled, particularly involving the Japanese yen. Traders speculated that Japanese authorities may have intervened to stabilise the currency after sharp fluctuations against the dollar.
The yen was last trading near 157 per dollar, while the euro and British pound weakened modestly. Meanwhile, the dollar index strengthened, reflecting its continued role as a safe-haven asset during geopolitical stress.
Gold Falls Despite Risk-Off Mood
In commodities, gold prices unexpectedly declined by over 2%, suggesting profit-taking despite broader market uncertainty.
Analysts warn that if oil prices remain above $100 per barrel for an extended period, the resulting inflationary pressure could undermine global growth and force central banks into more aggressive policy responses, prolonging volatility across financial markets.
