Middle East Conflict Sparks Oil Price Surge to $110

The recent armed conflict between the US and Iran over the Strait of Hormuz sent oil prices soaring, breaching $110 per barrel. Brent crude jumped over 8% for the week, hitting its highest level since May, while the U.S. 10-Year Treasury yield climbed to 4.99%, nearing a 5% threshold.

Rising oil prices are not just an energy cost issue but also feed into broad-based inflation through gasoline, diesel, transportation costs, and manufacturing inputs. Markets began betting that surging oil prices would eliminate room for central banks to cut rates and could instead force additional hikes.

Despite rising US yields and oil prices, the Japanese yen unexpectedly strengthened in currency markets. Expectations of further tightening by the Bank of Japan (BOJ) and the unwinding of accumulated yen short positions overwhelmed those forces.