Oil markets surged Monday after Donald Trump rejected Iran's response to a U.S. peace proposal, with Brent crude jumping nearly 4% to briefly touch $105.50 per barrel before settling at $103.50.
Trump dismissed Iran's counter-proposal as "totally unacceptable" in a Sunday evening post on Truth Social. The rejection underscores the widening gap between the two nations' positions as diplomatic talks stall.
The U.S. had proposed a 14-point plan to reopen the Strait of Hormuz, a crucial waterway through which roughly one-fifth of the world's oil and gas flows. The proposal also laid groundwork for future negotiations over Iran's nuclear program. Iran responded with a shorter moratorium on nuclear activities while refusing to dismantle its facilities.
The escalating tensions come 11 weeks into the crisis, with supply disruptions no longer temporary. Elevated oil prices are feeding into inflation worldwide, complicating efforts by central banks to lower interest rates and potentially slowing economic growth.
Britain felt particularly sharp effects. Government borrowing costs climbed as investors worried over persistent inflation and uncertainty following Prime Minister Keir Starmer's disappointing local election results. Yields on 30-year gilts rose 7 basis points, while 10-year yields climbed 5 basis points.
European stock exchanges showed mixed results. London's FTSE 100 edged up slightly, with oil majors BP and Shell among the gainers. France and Germany saw their indices slip amid broader economic headwinds. Asian markets presented a varied picture: Japan and Hong Kong retreated, while Shanghai rose on encouraging factory price data and Seoul surged on strength in tech stocks like Samsung.
Trump is heading to Beijing this week for meetings with Xi Jinping, marking the first visit by a sitting U.S. president to China in nearly a decade. Trade, Taiwan and China's role in Middle Eastern conflicts are on the agenda.
While officials speak of hopes for ceasefires, the economic damage from extended supply disruptions continues to mount. The Strait of Hormuz remains effectively closed, meaning commercial disruptions persist even if military hostilities cease. Businesses struggle to plan with confidence while inflation remains elevated and central banks remain cautious about rate cuts.
