Oil prices rose as US-Iran talks stalled over a peace deal and the reopening of the Strait of Hormuz, raising fears of supply disruptions in a key global energy route. The deadlock has heightened concerns over tighter oil supplies, inflation risks, and possible delays in interest rate cuts by major central banks, including the US Federal Reserve. Markets remain volatile as investors track geopolitical tensions and shifts across commodities, currencies, and equities, with safe-haven assets like gold also gaining demand
Oil prices rose to their highest level since July 31 on Tuesday as stalled US-Iran talks pushed the Strait of Hormuz back into focus, threatening to add to inflation pressures just as investors await fresh US price data.
Brent crude futures climbed to $88 a barrel, while US West Texas Intermediate (WTI) crude rose to $82.45. Both benchmarks hit their strongest levels in nearly two weeks after surging about 5 per cent in the previous session.
The rally came as negotiations between Washington and Tehran over a potential peace deal and the reopening of the Strait of Hormuz hit an impasse, reviving concerns over the security of one of the world’s most critical energy chokepoints.
US President Donald Trump’s response to Iran’s conditions for a deal further complicated the diplomatic picture. Trump reportedly demanded compensation from Tehran for people killed in wars, attacks and protests, hardening the US position and dimming hopes of a near-term breakthrough.
The renewed deadlock has kept energy markets on edge, with traders closely watching developments around the Strait of Hormuz, through which a significant share of global oil and gas shipments pass. Any prolonged disruption to the waterway is seen as a direct risk to global supply chains and inflation stability.
More from BusinessHormuz tensions keep oil markets volatile
The Strait of Hormuz remains a key pressure point for global energy markets, and the latest escalation has reinforced fears that even limited disruption could quickly ripple through crude prices, fuel costs and broader inflation expectations.
Monday’s sharp rally — which saw both Brent and WTI jump roughly 5 per cent — had already signalled heightened sensitivity to geopolitical risk. Tuesday’s follow-through gains extended that momentum as investors reassessed the likelihood of sustained supply uncertainty.
The focus now shifts to whether the standoff could translate into a broader inflation shock at a time when central banks are still grappling with sticky price pressures.
In the United States, attention is firmly on the July consumer price index (CPI) report due on Wednesday. Economists expect headline inflation to rise 0.1 per cent month-on-month, while core CPI is projected to increase 0.2 per cent.
A stronger-than-expected reading could revive speculation of another Federal Reserve rate hike next month. Markets currently see the probability of such a move as evenly balanced, leaving investors highly sensitive to any upside surprises in energy-driven inflation.
Higher crude prices could further complicate the outlook by raising transportation and production costs, feeding into broader price pressures across the economy.
Asian markets cautious, equities mixed
The uncertainty in oil markets and the inflation outlook kept Asian equities subdued on Tuesday.
MSCI’s broadest index of Asia-Pacific shares outside Japan fluctuated between gains and losses before last trading 0.2 per cent higher. South Korea’s Kospi added 0.3 per cent, reflecting cautious optimism in select markets.
Investor sentiment across the region remained fragile as traders weighed the potential economic fallout from prolonged disruption in the Gulf.
US stock futures were slightly higher, with Nasdaq futures up 0.28 per cent and S&P 500 futures rising 0.1 per cent, following a weaker Wall Street close on Monday.
In Europe, sentiment was largely muted. EUROSTOXX 50 futures slipped 0.05 per cent, while FTSE and DAX futures were broadly flat.
US Treasury cash trading was closed in Asia due to a holiday in Japan, though futures edged lower, pointing to a slight uptick in yields.
Australia’s central bank is also set to announce its policy decision later on Tuesday, with markets widely expecting interest rates to remain unchanged.
Yen under pressure, dollar supported
Currency markets remained volatile, with the Japanese yen staying under pressure at levels weaker than 159 per US dollar.
The yen has seen sharp swings in recent weeks, with the dollar-yen pair previously touching 155.20 amid suspected intervention by Japanese authorities, including coordinated action with the United States.
Despite intervention risks, traders continue to favour the dollar, particularly as higher oil prices add to demand for the US currency.
The euro last traded at $1.1546, holding below a 1.5-month high, while sterling eased to $1.3512 after briefly touching a one-month peak.
Gold edges higher amid safe-haven demand
Gold prices also advanced as investors sought safety amid geopolitical uncertainty and volatile energy markets.
Spot gold rose 0.5 per cent to $4,409.81 an ounce, supported by concerns over the US-Iran standoff and its potential impact on global inflation and interest rate expectations.
The broader direction of commodity markets is expected to remain closely tied to developments around the Strait of Hormuz. Any diplomatic progress that leads to a reopening of the waterway could ease pressure on crude prices, while continued deadlock is likely to keep volatility elevated.
For global investors, the key risk remains whether rising oil prices trigger a fresh inflation wave at a time when major central banks are still debating how long interest rates need to stay restrictive.
With inputs from agencies.
