Oil tops $95 as US-Iran fighting intensifies bond rout

Crude oil prices surged past $95 a barrel this week as renewed fighting between the United States and Iran sent shockwaves through global energy markets, deepened a historic bond selloff, and pushed Eurozone inflation to a three-year high — raising the specter of further interest rate hikes on both sides of the Atlantic.

Escalation in the Strait of Hormuz

The latest round of hostilities began Sunday when the U.S. military struck Iranian targets near the Strait of Hormuz, which President Donald Trump described as retaliation for Iran's "failed attempt at adding sea mines to the strait" and missile attacks on a U.S. base in Jordan. Iran responded with ballistic missile strikes on U.S. bases in Jordan and drone attacks targeting American forces in Bahrain and Iraq's Kurdistan region. Brent crude rose above $95 a barrel on Wednesday, extending a 4.6% rally from the previous day, while West Texas Intermediate traded above $91. Oil prices have spiked roughly 10% this week.channelstv+1

The Strait of Hormuz, through which about a fifth of the world's oil and gas passes, has been effectively closed to normal commercial traffic since earlier in the six-month conflict. The escalation has ended weeks of relative calm during which peace talks stalled, and Washington said it would pursue the "economic asphyxiation" of Iran.mappr+1

Inflation Shock Ripples Through Europe

The energy disruption is already showing up in consumer prices. Eurozone annual inflation accelerated to 3.3% in August from 2.9% in July, its highest level in three years, according to Eurostat's flash estimate. Energy prices drove essentially the entire increase, surging 14.3% year over year compared with 10.3% in July. Core inflation, which strips out energy and food, actually eased to 2.4%.euronews+1

"This was driven by a rebound in fuel prices following the renewed closure of the Strait of Hormuz, while underlying price pressures remained contained as services inflation came down," Leo Barincou, senior economist at Oxford Economics, told Euronews. In the United States, diesel prices hit a four-year high, underscoring the global reach of the supply disruption.christophe-barraud+1

Bond Rout and Rate Hike Expectations Intensify

The inflationary impulse has compounded a global bond selloff. The U.S. 10-year Treasury yield reached approximately 4.8%, its highest since early 2025, while the 30-year yield hovered near a two-decade high. In Japan, the 10-year government bond yield crossed 3% for the first time since 1996. British 10-year gilt yields hit their highest since mid-2007, and German Bund yields reached levels last seen in 2011.reuters+1

Traders now price a roughly 70% probability that the Federal Reserve will raise rates at its September 15-16 meeting, up from about 35% before Fed Chairman Kevin Warsh's hawkish Jackson Hole speech on August 28. The European Central Bank is expected to hike by 25 basis points to 2.50% when it meets on September 10, with markets assigning near-certainty to the move. According to a Reuters Thomson Reuters Corporation ↘ 5.44% analysis, government borrowing costs from the United States to Germany and Japan are now at or near multi-decade peaks on heightened worries about inflation, rising rates, and mounting debt loads.investing+2

Friday's U.S. nonfarm payrolls report looms as the next inflection point, with the potential to either cement or undermine the case for a Fed hike — and with it, the trajectory of energy-driven inflation fears that have reshaped global markets in a matter of days.investing