United States President Donald Trump’s administration and Iranian authorities have reignited concerns over global energy supplies after fresh military strikes around the Strait of Hormuz sent oil prices sharply higher on Monday, while Federal Reserve Chairman Kevin Warsh’s hawkish comments on inflation increased expectations that US interest rates could rise in September.
Brent crude rose above $90 a barrel, while West Texas Intermediate climbed above $85, after US forces struck two Iranian rocket launchers on Larak Island in the Strait of Hormuz on Sunday.
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Reuters reported that Brent was up about 2.5 per cent at $90.32 a barrel, while WTI gained about 2.4 per cent to $85.41.
The military exchange marked the first publicly confirmed US strike on Iran since late July and came after Washington said the Iranian launchers posed a threat to shipping through the strategically important waterway.
The United States said its forces had taken limited action to prevent Iranian forces from laying sea mines in the Strait of Hormuz.
Iran subsequently launched retaliatory missile attacks against US military positions in Jordan, according to Iranian authorities.
Jordan said its air defences intercepted eight missiles.
The renewed confrontation has unsettled oil traders because the Strait of Hormuz remains one of the world’s most important energy corridors.
Roughly a fifth of global crude and gas supplies normally pass through the waterway, making any sustained disruption potentially significant for producers, consumers and financial markets.
The latest escalation comes after oil prices had fallen for much of the previous week as traders assessed signs that energy flows through the strait were improving.
The sudden reversal has revived what analysts call the geopolitical risk premium, with investors once again pricing the possibility that the conflict could interfere with tanker movements and crude supplies.
“For oil traders, the move is another reminder of how quickly the geopolitical premium can return,” Quintex Intel analyst Stephen Innes said, according to the report.
Innes added that physical flows through Hormuz had improved materially from their worst levels, but the latest military exchange demonstrated how fragile that progress remained.
The development also arrives at an uncomfortable moment for the US Federal Reserve.
At the Jackson Hole economic symposium in Wyoming on Friday, Federal Reserve Chairman Kevin Warsh warned that policymakers needed clearer evidence that underlying inflation was moving towards the central bank’s 2 per cent objective.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said.
Warsh stopped short of explicitly signalling a September rate increase, stressing that he was committed to a discipline rather than a particular policy decision.
His remarks nevertheless pushed markets towards a more hawkish interpretation of the Fed’s next move.
US inflation remains well above the Federal Reserve’s 2 per cent target.
The Personal Consumption Expenditures price index was reported at 3.7 per cent year-on-year in July, leaving policymakers with limited room to ignore renewed energy-driven price pressures.
Higher oil prices could complicate that picture further.
Energy costs feed directly into fuel prices and indirectly into transport, manufacturing, food distribution and other parts of the economy.
A prolonged rise in crude prices could therefore make it harder for central banks to bring inflation down without keeping borrowing costs higher for longer.
Financial markets reacted to the combination of geopolitical uncertainty and Warsh’s comments.
Short-term US Treasury yields rose as traders increased expectations of a possible rate increase, while the dollar strengthened against several major currencies after Warsh’s speech.
US equities also ended Friday lower.
Asian markets were mixed on Monday as investors weighed the renewed conflict against expectations for tighter US monetary policy.
Tokyo, Hong Kong and several other major Asian markets declined, while Shanghai, Seoul and some other exchanges moved higher.
The immediate focus for investors will now shift towards US economic data.
Employment figures are due this week, followed by consumer price data next week.
Those releases could determine whether the Federal Reserve sees enough evidence of persistent inflation to justify raising interest rates at its September meeting.
Market expectations have already moved noticeably following Warsh’s Jackson Hole speech.
The Financial Times reported that futures markets were pricing roughly a 57 per cent probability of a September rate increase, although the final decision remains dependent on incoming economic data.
The oil market, meanwhile, faces a different but closely connected uncertainty.
The central question is whether the latest US-Iran exchange remains a contained confrontation or develops into a broader escalation capable of seriously disrupting the Strait of Hormuz.
The US strikes were presented by Washington as defensive action aimed at preventing Iran from using mines to threaten maritime traffic.
Tehran, however, has described the attacks as aggression and has vowed to respond.
That disagreement leaves traders watching both military developments and shipping activity in the strait.
Any prolonged disruption could place further upward pressure on crude prices, while a de-escalation could allow some of the geopolitical premium built into oil prices to unwind.
The consequences extend beyond the oil market.
For major energy-importing economies, sustained crude prices above $90 could increase fuel and transport costs.
For central banks, the prospect of energy-driven inflation could make interest-rate decisions more difficult.
For oil-producing countries, however, higher crude prices can provide a temporary boost to export earnings, although the benefits depend on production levels, domestic fuel consumption and government fiscal arrangements.
The latest surge therefore represents more than a reaction to a single military exchange.
It is a reminder of the fragile relationship between geopolitics, energy security and monetary policy.
With the US-Iran conflict entering another dangerous phase and the Federal Reserve facing stubborn inflation, markets are once again being forced to price two powerful risks at the same time.
For now, oil prices surge has become the clearest market response to the renewed tensions.
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Whether that surge develops into a sustained rally will depend largely on what happens next in the Strait of Hormuz and whether Washington and Tehran can prevent another escalation.
