Brent and WTI rose by more than 2 per cent on Monday morning, according to Euronews. This was triggered by reports of a US strike on Iranian missile installations on a small island in the Strait of Hormuz. In response, Tehran launched strikes on US military facilities in Jordan.
The escalation has once again cast doubt on the situation regarding shipping through the Strait of Hormuz. About one-fifth of the world’s oil and gas supplies pass through this strait. In recent weeks, the intensity of hostilities had been declining, and physical shipments had been gradually resuming. The new strikes have shown just how quickly this trend can change.
At the same time, oil is receiving support from two fronts. Geopolitical risk is pushing prices higher, while high energy costs are complicating the Federal Reserve’s efforts to bring inflation back to its 2% target.
Statements by Fed Chair Kevin Warsh placed additional pressure on the markets. Speaking at the annual symposium in Jackson Hole, he made it clear that the central bank is prepared to act if core inflation does not begin to decline quickly enough.
According to data cited in the article, inflation stands at 3.7%—nearly double the Fed’s target level. Warsh described the trend as alarming and noted that current financial conditions can hardly be called restrictive.
At the same time, the Fed chair did not commit in advance to a specific rate decision. “Today, I am expressing a commitment to a certain discipline, not to a specific decision,” he said.
Investors interpreted the remarks as a signal of a possible policy tightening. On Friday, all three major U.S. stock indices closed lower. Yields on short-term Treasury bonds rose, the dollar strengthened, and gold prices fell.
In Asia, technology companies were hit the hardest. Their stocks are falling amid fears that higher borrowing costs will hurt companies that are actively raising funds for large-scale investments in artificial intelligence.
Markets in Tokyo, Seoul, Hong Kong, Shanghai, Taipei, and Jakarta were trading in the red this morning. Singapore and Wellington managed to stay in the black.
Investors are now awaiting U.S. macroeconomic data. Employment data will be released this week, and the consumer price index next week. These releases could be decisive for expectations regarding the Fed’s next moves.
Meanwhile, the oil market will be keeping an eye on the Strait of Hormuz. If tensions around this key shipping route escalate, the geopolitical premium in prices could rise rapidly once again. At the same time, higher oil prices could intensify inflationary pressures and complicate the Fed’s task.
For investors, this presents a rare combination of risks: oil is being supported by geopolitical factors, while stocks are facing additional pressure from the prospect of tighter monetary policy.
