Global oil prices experienced a significant surge this week, jumping over 9 per cent on Monday and climbing more than 1 per cent further on Tuesday. This sharp increase follows renewed US strikes against Iran, which have intensified hostilities in the Middle East and heightened concerns over a potential spike in inflation.
Middle East Tensions Escalate
The escalation began on Sunday, July 14, 2026, when Iranian forces struck a commercial ship in the Strait of Hormuz, a vital waterway through which approximately a fifth of the world's oil passes. Iran subsequently announced the closure of the strait, triggering a series of US retaliatory strikes on sites within the Islamic republic.
Iran responded by hitting targets in Bahrain, Jordan, Kuwait, and Oman. Former US President Donald Trump, speaking on Monday before the latest US attacks, stated, “we’re going to hit them very hard tonight, and we’re going to hit them hard tomorrow.”
Trump later declared on Truth Social that the United States would be “known as ‘THE GUARDIAN OF THE HORMUZ STRAIT’” and would levy a 20 per cent fee on all cargo shipped through the waterway. He added that while Iran’s ports would again be blockaded, “all other countries will have fair and open use of the strait.”
Despite the aggressive stance, Trump also suggested that a deal with Tehran to end the crisis remained possible, telling reporters in the Oval Office, “Yeah, I think a deal is possible. Sure, I do.”
Oil Market Volatility and Proposed Levies
The renewed conflict fears and the potential for a fresh surge in inflation prompted oil prices to shoot up more than nine per cent on Monday. They continued their ascent on Tuesday, piling on more than one per cent. West Texas Intermediate was up 2.6 per cent at $80.15 a barrel, while Brent North Sea Crude rose 2.4 per cent to $85.37 a barrel.
BNZ’s Jason Wong commented on Trump’s proposed 20 per cent levy, noting that “With Trump, one never quite knows how seriously to take such pronouncements, but Gulf allies would not be pleased with this plan, and it almost certainly violates international law.” Wong estimated that the levy “would add about $16 to the cost of every barrel of oil passing through the strait on a typical supertanker.” He questioned whether the plan would stick or if it was merely a negotiating tactic.
Global Economic and Equity Market Impact
The oil price surge has fueled fears that a fresh spike in inflation could compel the Federal Reserve and other central banks to hike interest rates sooner than anticipated. Fed governor Christopher Waller stoked these concerns on Monday, stating, “If we get another hot reading on core inflation this week, then the (rate-setting committee) will need to consider tightening monetary policy in the near term.”
Equity markets mostly saw a rise after the day, though confidence remains fragile amid worries that the tech sector’s AI-led rally has gone too far. Tech firms enjoyed a much-needed reprieve, clawing back some losses. Seoul was at the forefront, ending in positive territory after wild swings that saw it drop as much as five per cent at one point.
SK hynix ended up more than three per cent, recovering from a 15 per cent collapse the previous day. Its New York-listed shares, which soared over 13 per cent on their debut on Friday, had plunged more than nine per cent on Monday. Rival Samsung was up 3.3 per cent.
Other Asian markets saw mixed performance: Tokyo – Nikkei 225 was UP 0.7 per cent at 67,743.50 (close), Seoul – Kospi was UP 0.7 per cent at 6,856.83 (close), Hong Kong – Hang Seng Index was UP 0.6 per cent at 24,352.92, and Shanghai – Composite was UP 1.4 per cent at 3,967.13 (close). Singapore, Manila, and Jakarta were also up, while Wellington, Taipei, Mumbai, and Bangkok fell.
European markets opened lower, with London – FTSE 100 DOWN 0.3 per cent at 10,464.94. In currency markets, Euro/dollar was UP at $1.1389 from $1.1384 on Monday, Pound/dollar was UP at $1.3358 from $1.3353, Dollar/yen was DOWN at 162.34 yen from 162.43 yen, and Euro/pound was UP at 85.27 pence from 85.25 pence. New York – Dow was DOWN 0.3 percent at 52,498.64 (close).
Investors are keenly awaiting a busy week, with the earnings season commencing, Fed boss Kevin Warsh scheduled to testify in Congress, and crucial US inflation data set to be released.
