Crude oil prices surged by more than two per cent on Wednesday, extending their gains to around 10 per cent this week after fresh US strikes on Iran triggered retaliatory attacks across the Middle East.
The renewed military confrontation has also rattled financial markets, with stocks falling and bond yields remaining near multi-decade highs as investors increasingly bet on higher interest rates.
The latest escalation followed weeks of relative calm, during which peace negotiations failed to make progress. Washington had also signalled plans to pursue what it described as the “economic asphyxiation” of Iran.
With the Strait of Hormuz expected to remain effectively closed for the foreseeable future, concerns over prolonged energy shortages and higher prices are intensifying. About one-fifth of global oil and gas supplies pass through the strategic waterway.
Rising energy costs, combined with concerns over government spending and a surge in corporate debt issuance, have strengthened expectations of further interest-rate increases and pushed government borrowing costs higher.
The yield on 30-year UK government bonds climbed to its highest level since 1998, while the 10-year yield reached levels last seen during the 2007–08 global financial crisis.
Japan’s 10-year bond yield also touched a 30-year high, while 30-year US Treasury yields approached their 2007 levels. The US 10-year yield similarly remained around financial-crisis-era levels.
“Bond yields were already rising, and the renewed US-Iran attacks and their impact on oil prices have made investors more concerned about bonds,” Rajeev De Mello, at Gama Asset Management, said.
“At these levels, higher yields are clearly a headwind to Asian equities, especially longer duration tech stocks.”
Major Asian markets recorded losses, with technology stocks bearing much of the pressure as higher borrowing costs threaten companies that depend on cheap financing to support investment.
Markets in Tokyo and Seoul declined, while Hong Kong, Shanghai, Sydney, Singapore, Wellington, Taipei and Manila also recorded significant losses.
The declines followed losses across all three major US stock indexes on Wall Street.
Investors are now awaiting key employment and inflation data expected over the coming week, with the figures likely to influence the Federal Reserve’s decision on interest rates at its next meeting.
According to Bloomberg, traders are pricing in a 70 per cent chance of a rate hike.
Fed Governor Michael Barr added to those expectations, saying policymakers should be prepared to raise rates if inflation remains stubbornly above the central bank’s two per cent target.
“If trends in the data give me some confidence that inflation is moderating on a path to two percent, then I think we can take a bit more time to assess our policy stance,” he said in prepared remarks.
“However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates.”
Key Market Figures
- West Texas Intermediate: Up 1.5% at $91.60 per barrel
- Brent crude: Up 1.9% at $96.45 per barrel
- Tokyo Nikkei 225: Down 2.6% at 64,473.16
- Hong Kong Hang Seng: Down 1.1% at 25,053.02
- Shanghai Composite: Down 1.1% at 3,934.36
- Dollar/yen: Up at 160.34 yen from 160.24 yen
- Euro/dollar: Down at $1.1578 from $1.1589
- Pound/dollar: Down at $1.3503 from $1.3511
- Euro/pound: Down at 85.73 pence from 85.77 pence
- Dow Jones: Down 0.8% at 52,766.88
- FTSE 100: Down 0.3% at 10,789.28
Iran launched attacks against US interests across the Middle East on Wednesday, warning that Washington would face “severe” consequences for its latest military action.
The renewed fighting around the Strait of Hormuz has spread to US military installations across the region and drawn Washington’s Gulf allies further into the six-month conflict.
US President Donald Trump had earlier threatened “much harder and higher” attacks if Tehran retaliated against the latest US strikes, which Iranian state media said killed 11 people in southern and southwestern parts of the country.
Iranian media reported that Tehran fired ballistic missiles at two US bases in Jordan.
The Jordanian military said it intercepted 10 ballistic missiles launched from Iran and reported no injuries or direct hits. It added that three missiles landed in remote locations.
Missile and drone attacks were also reported in Kuwait, where the military said it was responding to Iranian hostilities. Air raid alerts were also heard in Bahrain early Wednesday, according to AFP reporters.
Iran’s military said it launched drones at US forces stationed at an air base in Bahrain, a key American ally in the Gulf.
In Iraq’s autonomous Kurdistan region, Iran’s Revolutionary Guards said they attacked US bases using missiles and drones, destroying a maintenance centre, warehouses and other equipment, state-run IRNA reported.
The latest escalation began after Washington attacked Iranian targets on Sunday, marking the first known US strikes in several weeks. Tehran subsequently targeted American troops in Jordan and the United Arab Emirates, while projectiles also struck two oil tankers in separate incidents whose perpetrators remain unidentified.
Additional US strikes were reported on Tuesday, with Iranian state television reporting explosions in areas around the southern Hormuz Strait and on an island in the Gulf. US forces also reportedly struck an airport in Kerman province.
IRNA reported that “four projectiles hit areas within the counties of Chabahar and Konarak”, although it did not provide details on possible damage.
Seven people were killed and eight others wounded in a missile attack in southern Khuzestan province, according to IRNA.
Iran’s Red Crescent had earlier reported that shrapnel from a US missile killed four people, including a child, and wounded more than 50 others in Kuhestak, Hormozgan province.
The US military did not directly address reports of the wedding strike. However, US Central Command spokesman Tim Hawkins said “the US military never targets civilians, unlike the IRGC”, referring to Iran’s Revolutionary Guards.
Trump said the “large and powerful” US strikes were carried out in retaliation for what he described as Iran’s “failed attempt at adding sea mines to the Strait” and Tehran’s attack involving eight missiles targeting a US military base in Jordan.
Revolutionary Guards spokesman Hossein Mohebi warned on X that Washington “will regret its new attacks”, adding that “severe punishment awaits the aggressors”.
Iranian military spokesman Ebrahim Zolfaghari also warned that “any country that cooperates with the aggressive American army will face more severe, more widespread and destructive responses”.
The conflict has now lasted six months, with Iran maintaining its closure of the Strait of Hormuz while the United States continues its counter-blockade of Iranian ports.
Washington said its forces attacked Iranian rocket launchers on Larak Island on Sunday in an effort to prevent Tehran from placing mines in the main shipping lanes.
The wider Middle East conflict began in late February following US-Israeli attacks on Iran that killed its supreme leader, Ayatollah Ali Khamenei.
A fragile ceasefire subsequently collapsed after attacks involving commercial vessels in the Strait of Hormuz, a crucial global energy route through which approximately one-fifth of the world’s oil supplies passed before the war.
Trump warned on Truth Social on Tuesday that if Iran retaliated, “they will be hit again at a much harder and higher level, but it will not be the biggest attack of them all.”
“That is waiting in the wings and, when it is over, there will be very little left of the Islamic Republic of Iran!” he wrote.
He separately said he was “not trying to force Iran to the bargaining table”, adding that he “couldn’t care less if they sign a worthless, to them, agreement”.
He also asked: “When are the Iranian people going to rise up and fight?”
Greek maritime risk management firm Marisks said two crude oil tankers were struck by “unknown projectiles” late on Monday.
The United Kingdom Maritime Trade Operations agency confirmed one of the incidents but said there were no reported casualties or environmental damage.
Despite the continued diplomatic stalemate, Iranian President Masoud Pezeshkian said on Tuesday that Tehran would respond to any US move aimed at returning to negotiations over a deal to end the conflict.
He warned that a renewed US “policy of pressure and threats could derail the path of diplomacy”.
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