Brent oil prices were little changed in early Asian trade, after closing above $100 a barrel, the highest since May. The surge in oil prices pushed Treasury bonds lower and strengthened the US dollar, on concerns about inflation and rising interest rates.
Trump Threatens to Intensify Conflict, Fed Becomes More Urgent
The move came as President Donald Trump threatened to intensify the conflict with Iran, after Houthi militants attacked two Saudi oil tankers in the Red Sea, adding to concerns about global energy supply disruptions.
The surge in energy prices has revived concerns that inflation could be more persistent, further complicating the Federal Reserve's (Fed) policy direction ahead of next week's meeting. Money markets are now fully pricing in a Fed rate hike by September, with investors watching whether rising oil prices will spill over into broader inflation.
Global Energy Supply Risks Rising
The latest escalation is adding to pressure on the global energy supply chain. Fighting around Iran has already disrupted shipping through the Strait of Hormuz, the gateway to the Persian Gulf, while attacks in the Red Sea threaten alternative routes that Saudi Arabia has long focused on to keep crude flowing.
Markets have also been hit by a series of attacks on the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast, which exports most of Kazakhstan’s crude. Inventories around the world have also been depleted by months of conflict, raising the risk of a supply crunch that could weigh on the global economy if prices continue to surge.
ECB Ready for September Rate Hike
European Central Bank (ECB) President Christine Lagarde laid the groundwork for a possible interest rate hike in September, after policymakers unanimously left the deposit rate unchanged at 2.25 percent.
Gold Is Bad!
Gold prices fell nearly 2 percent to around $4,050 an ounce on Thursday, as bets on rising interest rates reduced the appeal of the metal, which offers no interest.
Yen Remains Weak, New US Tariffs Take Effect
The Japanese Yen held on to previous session losses, trading around 163.83 per dollar, after a key gauge of Japanese inflation rose for the first time in three months, maintaining the Bank of Japan's stance for another interest rate hike this year.
In tariff news, the United States will levy duties of between 10 and 12.5 percent on imports from most major trading partners, the biggest step yet to rebuild Trump's tariff wall that was previously struck down by the Supreme Court.
Impact on Markets and Ringgit
The combination of multiple geopolitical risks across the Strait of Hormuz, the Red Sea and now the Black Sea points to the growing fragility of the global energy supply system.
For the Ringgit, a surge in oil prices beyond USD100 a barrel has the potential to significantly increase the country's energy import cost pressures, while expectations of Fed and ECB interest rate hikes also support the strength of the dollar against regional currencies.
Key Takeaways
Brent oil prices breached $100 a barrel, their highest since May, following Houthi attacks on Saudi oil tankers.
Money markets are now fully pricing in a Fed rate hike by September on inflation concerns.
Global energy supply risks are rising across the Strait of Hormuz, Red Sea and Russian Black Sea oil terminals.
ECB keeps deposit rate at 2.25 percent, but Lagarde leaves room for a September rate hike.
US imposes new 10-12.5 percent tariffs on most major trading partners.
As long as these multiple geopolitical risks continue to overshadow global energy markets, oil prices are expected to remain high and volatile in the near term, with the potential to be felt in the cost of living and investment around the world.
