The first direct U.S.-Iran attacks in a month have pushed Middle Eastern oil benchmarks back above $100 a barrel, with Trump threatening further strikes after hitting Larak Island. Two VLCCs were hit by projectiles near the Strait of Hormuz on Tuesday, while surging global bond yields threaten to cap the rally by choking demand.
Middle Eastern benchmarks have moved past $100 per barrel again. ICE Brent trades at $92 per barrel by comparison. The first exchange of direct U.S.-Iran attacks in a month has reignited fears that the Middle East conflict could last into 2027, with President Trump threatening further strikes after Washington's attack on Larak Island.
Hormuz recovery stalls after new tanker strikes
Washington's sanctions on Tehran are making transits through the Strait of Hormuz ever more difficult, and Saudi Aramco's attempt to boost flows from the Persian Gulf was immediately nipped in the bud by Tehran's drone attacks. Two VLCCs carrying Saudi oil, the Sidr and the Senegal Prosperity, were hit by projectiles while exiting the Strait of Hormuz on Tuesday, threatening the fragile rebound in Gulf oil exports. The strikes come just as Aramco lifted August loadings in the Gulf to 700,000 barrels per day.
Rising bond yields turn the rally into a demand risk
Yet the price spike carries its own headwind. Global bond yields have surged to their highest level since 2008, as rising oil prices feed fears of longer-lasting inflation, which in turn creates a cycle of lower demand further down the road. The rally started in earnest after new Federal Reserve chairman Kevin Walsh vowed to finally tame U.S. inflation, currently at 3.4%. That pushed 10-Year Treasury yields to 4.76%.
The bond spiral extended into other developed economies. 10-year Japanese bond yields touched a 30-year high above 3%, while 10-year UK bonds surged to 5.2%. Higher yields raise borrowing costs for households and companies, slowing vehicle purchases, air travel, construction, manufacturing and freight, while simultaneously pushing up the cost of drilling, pipelines and large upstream developments. As a result, the market is now pricing an almost 60% chance the Federal Reserve will raise rates by a quarter-point at its meeting this month, a policy move known as a rate hike.
Source: Oilprice.com
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