Oil prices surge as U.S.- Iran talks collapse, dollar strengthens and stocks fall

Oil prices surged on Monday (13 April) as the U.S. moved to impose a blockade on Iranian shipping after the collapse of weekend peace talks, while the dollar rose and stocks and bonds fell.

The U.S. move, aimed at putting pressure on Tehran, leaves a fragile ceasefire hanging in the balance and no end in sight to the choke on Middle East energy exports- though the mood on trading floors leaned toward hoping for a resolution.

Brent crude futures were up 7.3% at $102 a barrel- a gain of more than 40% since the war shut navigation of the Strait of Hormuz.

S&P 500 futures were down 0.7% through the Asia day and European futures STXec1 fell 1.4%. 

U.S. Treasuries and bonds around Asia traded lower, with Japan's benchmark 10-year yield hitting a 29-year high of 2.49%, though moves were relatively modest and took most assets to roughly where they sat before last week's ceasefire.

"The market is now largely back to conditions before the ceasefire, except now the U.S. will block the remaining up to (2 million barrels) Iranian-linked flows through the Strait of Hormuz as well," said MST Marquee analyst Saul Kavonic.

"The key remaining question is if the U.S. renews strikes on Iran, raising the risk of strikes on energy infrastructure across the region which could have a further lasting impact beyond the duration of the war."

• Oil tankers steer clear of Hormuz ahead of U.S. blockade
• U.S.-Iran ceasefire deal shows strain ahead of talks with oil flows squeezed
• Oil slides below $100 and stocks jump after two-week Iran war ceasefire agreed

The Wall Street Journal reported President Donald Trump and his advisers were weighing limited strikes on Iran, though there were no immediate reports of attacks in the Asia day.

Trump said on Sunday that the price of oil and gasoline ​may remain high into the midterm elections in the U.S. in November, a rare acknowledgement of the potential political fallout from the war.

Dollar higher, inflation looms

In foreign exchange trade the euro fell about 0.3% to $1.1687 and risk-sensitive currencies such as the Australian dollar slipped a little further. 

Equity benchmarks from Hong Kong to Tokyo, Seoul and Sydney dropped around 1%.

"The market is saying that it doesn't believe Trump is going to strike more military assets or take over the Strait of Hormuz," said Russel Chesler, head of investments and capital markets at VanEck in Sydney.

However, he added, there were growing worries about inflation, which would intensify the longer the oil shock lasts.

• Japan taps emergency oil reserves as Strait of Hormuz crisis disrupts global supply
• Strait of Hormuz blockade triggers urgent response from UK, France and Japan

With inflation fears reviving, investors are now bracing for central banks, such as the European Central Bank and Bank of England, tilting towards raising rates in a sharp reversal from pre-war bets on rate cuts or a prolonged pause.

The outlook is especially delicate in Japan, where traders expect rates to keep rising in the medium term but are cooling on the prospect of a hike this month while markets are volatile.

Tags

energy markets oil prices Brent crude Strait of Hormuz Middle East conflict Global inflation stock markets European Central Bank Japan economy Iran war