Oil Price Surge Triggers Inflation Fears as Middle East Tensions Escalate

Oil prices surged to a 10 percent gain this week following a series of tit-for-tat attacks in the Middle East, which has left investors concerned about inflation and economic stability. The recent flare-up in tensions began after the US hit an Iranian island in the Strait of Hormuz at the weekend.

The strait is crucial for global oil supplies, accounting for around 20 percent of world trade. Brent North Sea Crude rose to $95.43 per barrel on Wednesday morning, while West Texas Intermediate traded at $90.67 per barrel.

As a result of rising oil prices and inflation fears, bond yields have also increased, with the UK's 30-year government bond yield reaching its highest level since 1998. This has led to expectations of higher interest rates from the Federal Reserve in the US, with investors pricing in a 70 percent probability of a rate hike.

Rajeev De Mello at Gama Asset Management noted that 'bond yields were already rising and the renewed US-Iran attacks and their impact on oil prices have made investors more concerned about bonds.'