Oil Prices Soar as US-Iran Conflict Escalates Amid Rate Hike Expectations

Asian share markets skidded on Monday as fresh fighting between the US and Iran pushed oil prices higher, while bond yields remained elevated after investors reduced their expectations of a US rate hike.

Brent futures rose 1.4% to $89.38 a barrel following US forces striking two of Iran's launchers on its Larak island. Iran responded by attacking US forces in Jordan, according to Fox News.

The increased risk to inflation kept bond markets on edge after Federal Reserve Chair Kevin Warsh emphasized the central bank's need to control inflation. Markets reacted by increasing the probability of a September rate hike to 57%, which pushed short-term Treasury yields sharply higher and flattened the curve.

Despite expectations that a hike won't come until December, analysts agree that the September meeting is live, according to Michael Feroli, chief US economist at JPMorgan. The outcome of Friday's August payrolls report and consumer price data due on September 11 will be key in determining the timing of hikes.