Iran conflict drives oil above USD 90; global bond yields spike as inflation fears resurface

The Iran conflict is reshaping energy markets and undoing months of disinflationary narrative. Oil prices jumped above USD 90 per barrel as traders priced in supply disruption risks to the Strait of Hormuz, through which 20% of global oil flows. Brent crude surged on the same concerns, with energy importers worldwide facing margin pressure and demand destruction risks.

The ripple through fixed income was immediate and violent. US Treasury yields rose across the curve, with the 10-year breaking through 4.5% on the back of heightened inflationThe rate at which prices rise across an economy. expectations. UK gilts were hit even harder, posting their worst week since 2024 as traders baked in stagflation fears. Japan's government bond yields climbed to multi-year highs despite the BOJ's monetary easing bias, reflecting global real-rate pressures.

Emerging markets felt the pinch first. India's government raised petrol and diesel prices Friday for the first time in four years, signaling that fiscal buffers are depleting. Pakistan accelerated LNG imports from the Persian Gulf to ease energy costs. Ghana's central bank and regional policymakers signaled that rate hikes will persist longer than previously expected. The oil shock is spreading inflationThe rate at which prices rise across an economy. fears globally, undermining the case for rate cuts across the developed and developing world.

Commodity traders are bracing for a multi-quarter energy supply shock. The UAE is rushing to complete a Hormuz-bypass pipeline by 2027, but that provides no relief for 2026. Gold rose on the inflationThe rate at which prices rise across an economy. bet, with central banks and inflation-hedge flows boosting demand. Copper extended losses on dollar strength and demand concerns. Energy stocks like XLE are outperforming broad equities, but the sector rotation comes at the cost of consumer and rate-sensitive names that are selling off on the prospect of persistent inflation.