Oil Prices Soar as Middle East Tensions Escalate

A fresh flare-up in Middle East tensions has led to another surge in oil prices, sparking fears of higher inflation. The US hit an Iranian island in the Strait of Hormuz, prompting a series of tit-for-tat attacks that have targeted American interests in several regional countries.

Crude oil jumped more than 2% and has spiked around 10% this week. The strait, through which about a fifth of world oil and gas passes, is effectively closed for the foreseeable future, making energy costs unlikely to come down anytime soon.

As a result, inflation fears are growing, and investors are ramping up rate hike bets. This has put upward pressure on government borrowing costs, with bond yields reaching multi-decade highs.

The yield on 30-year UK government bonds is at its highest since 1998, while those for 10-year debt are at the level last seen during the global financial crisis of 2007-08. Japan's 10-year bond yield is also at a 30-year high.