US-Iran Tensions Spike Oil Prices and Shake Global Markets

The recent escalation of military conflict between the United States and Iran in the Persian Gulf has triggered a sharp rise in global oil prices and significant market volatility. Following Iran's announcement that it blocked the strategic Strait of Hormuz, a vital route for global energy shipments, Brent crude oil surged by 4.1% to $79.11 per barrel, while West Texas Intermediate (WTI) rose similarly to $74.37. The tensions included reciprocal attacks between the US and Iran, with about 20 US-escorted vessels reported in the strait over the past 24 hours, though overall maritime traffic remains sparse.

The conflict's impact extended to currency markets, with the US dollar strengthening against the Israeli shekel by 0.5%, trading above 3.02 shekels, and the euro also gaining 0.5% locally to around 3.45 shekels. Globally, the US Dollar Index rose 0.2% to 101.1 points, while major European currencies weakened against the dollar, with the euro dropping 0.2% to approximately $1.14, reflecting Europe's heavier reliance on imported oil compared to the US.

Asian stock markets reacted negatively, with Japan's Nikkei index falling 1.6% and the MSCI Asia-Pacific index down 0.9%. South Korea's market suffered the steepest decline, plunging 5.4% after an 8% loss the previous week, highlighting concerns about the semiconductor sector amid high investor leverage. Despite this, South Korean chipmaker SK Hynix saw a nearly 14% jump in its Nasdaq debut last Friday. US futures also pointed to declines, with S&P 500 futures down 0.4% and Nasdaq futures off 0.9%, while European futures for the EuroStoxx 50 and Germany's DAX dropped 0.6%.

Analysts at Citi remain cautiously optimistic about the global and US technology sectors, maintaining an overweight rating due to strong earnings growth and attractive valuations, though they expect continued volatility around artificial intelligence developments. Conversely, Bank of America analysts warned that heavy AI-related capital expenditures, totaling $234 billion this year, are eroding tech giants' cash flow, potentially turning free cash flow negative for the first time since 2007.

The oil price surge also pushed US two-year Treasury yields to their highest since early 2025 at 4.2393%, increasing expectations for further Federal Reserve rate hikes. The markets are now awaiting US June Consumer Price Index data due Tuesday, which may show a slight easing of inflation to 4.2%, though analysts caution that recent oil price spikes could reverse this trend. This comes just one day before Federal Reserve Chair Kevin Warsh is set to testify before Congress for the first time in his new role.