Escalating military tensions across key Middle East energy chokepoints triggered a dramatic spike in global oil prices Thursday, pushing the international benchmark Brent crude to $107.40 per barrel — its highest level since May — and stirring broad volatility across global financial markets.
The sharp uptick came after a week of intensifying clashes in the Strait of Hormuz and Red Sea, where the United States and Iran have exchanged direct strikes, and Iran-aligned Houthi forces have launched attacks on Saudi infrastructure, inflaming unrest around the Bab al-Mandab Strait, another critical route for global energy trade. By the close of trading Thursday, Brent crude had climbed 6.1% from its previous close, while U.S. West Texas Intermediate crude rose 6.2% to hit $102 per barrel, also a multi-month high. Both benchmarks have now reclaimed the $100 per barrel threshold after months of trading below that mark.
Market analysts warn the resurgent open conflict has upended earlier forecasts for a quick stabilization of Middle East energy output. Jason Tuvey, deputy chief emerging markets economist at Capital Economics, noted that the ramp-up in attacks signals Iran and its proxies are moving to reassert military control in the region, a shift that could curb Gulf oil production recovery and push energy prices even higher in coming weeks.
The new outlook for prolonged market disruption directly contradicts recent political promises from U.S. President Donald Trump, who claimed Wednesday that the Iran conflict would end shortly after November’s midterm elections, leading to a sharp plummet in energy prices. But S&P Global Energy now projects that Middle East oil production will not return to pre-war levels by the end of 2027, and has abandoned forecasts for a definitive end to hostilities and a return to normal shipping through the Strait of Hormuz by that date. The firm now expects crude prices to remain elevated between $80 and $100 per barrel through all of next year. Jim Burkhard, S&P Global Energy’s global head of crude oil research, emphasized that markets are not moving toward a calm, and are instead adjusting to a “new normal” defined by unresolved conflict and ongoing maritime security risks.
The oil price jump has amplified existing investor jitters over persistent inflation and impending central bank interest rate hikes, sending shockwaves through both bond and stock markets. The sell-off in U.S. government bonds accelerated sharply Thursday, with the yield on the benchmark 10-year Treasury note surging nine basis points to 4.92% — its highest level since October 2023. The yield jump came even after the U.S. Treasury Department announced Wednesday it would buy back up to $6 billion in bonds Thursday, a move designed to ease upward pressure on yields. However, many investors dismissed the buyback as insufficient to counter broader market forces. Mike O’Rourke, chief market strategist at JonesTrading, compared the policy action to “shooting a BB gun at an elephant.”
Fresh economic data compounded market concerns, with new figures showing headline wholesale inflation accelerated in August. According to CME FedWatch, traders now price in a 72% chance the U.S. Federal Reserve will raise interest rates at its upcoming policy meeting next week, up from 61% just one day prior and 49% a week earlier. U.S. equities extended a recent losing streak Thursday, with major indexes falling for the fourth consecutive session. The S&P 500 dropped 0.5%, pushing the index more than 2.5% below its record high set on August 13. As corporate earnings season draws to a close, investors have shifted their full attention to the Iran conflict, climbing bond yields, and the uncertain path of Federal Reserve monetary policy.
Consumer and business costs are already feeling the strain of sustained high energy prices. Data from AAA shows the U.S. national average price for diesel — a critical fuel for trucking, shipping, and industrial activity — hit a new record high of $5.98 per gallon Thursday. Claudio Galimberti, chief economist at Rystad Energy, told CNN that the spike in refined petroleum products like diesel is more alarming than the rise in crude prices, because refined products are directly used by businesses, industry, and end consumers. “When it comes to crude, the situation is actually less dangerous than it is in the oil products, specifically diesel,” Galimberti said.
Rising 10-year Treasury yields have also pushed borrowing costs higher across the U.S. economy, pushing mortgage rates to their highest level in 15 months. Freddie Mac data shows the average 30-year fixed mortgage rate hit 6.76% this week, up from 6.35% one year prior. The European Central Bank followed market trends Thursday, announcing a quarter-percentage point increase to its main interest rate, bringing it to 2.5% — the second rate hike this year, driven by inflation pressures linked to the Iran war energy shock. In a statement, the ECB confirmed that “the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.”