US-Iran conflict, rising prices and rising rates
Between September 9th and 11th, global markets encountered an old enemy: the energy shock . The escalation between the United States and Iran transformed the Strait of Hormuz into the world economy's main flashpoint, while the Houthi advance on the Red Sea front added a second risk to trade routes. The shift from geopolitics to inflation, from energy prices to bond yields, and finally to equity valuations, was rapid.
Oil is back to setting the pace
The week changed tone when Tehran declared it had struck 10 ships near Hormuz after the US sank five Iranian oil tankers . For investors, the focus was not just the military incident, but the possibility that the conflict could further jeopardize one of the world's most important energy corridors.
Brent crude once again surpassed $100 a barrel , rising as high as $109.97 during the period. The situation was further complicated by the Houthi advance in Yemen, which has led to the control of strategic positions in the Bab el-Mandeb area. While Hormuz is the main chokepoint for Gulf oil, Bab el-Mandeb is one of the gateways to the Red Sea and the Suez Canal: the simultaneous instability of both passages increases the risk of higher logistics costs and renewed price pressures.
Donald Trump's statements also dampened sentiment. The possibility that the conflict could drag on beyond the midterm elections dampened hopes for a rapid normalization. The market has therefore begun to view rising energy prices no longer as a transitory episode, but as a factor capable of influencing inflation and monetary policy for months.
The ECB responds to the energy shock
In Europe, the most visible consequence came from the European Central Bank. The ECB raised rates by 25 basis points , bringing the deposit rate to 2.50% , in an attempt to prevent rising energy prices from being passed on permanently to the rest of the economy.
The bond market's reaction was immediate. The yield on the 10-year German Bund reached levels not seen since 2011 , while that on the 30-year French bond rose to its highest level since 2003. Investors are reevaluating the idea that the monetary normalization phase is over and are beginning to consider a new round of hikes.
This trend has also weighed on the euro. Under normal conditions, a rate hike should support the currency, but this time the ECB's tightening has also been interpreted as a response to a worsening macroeconomic environment. Higher energy prices and higher interest rates represent a problematic combination for an area heavily dependent on energy imports.
The inflation problem returns in the United States
The same tension was evident across the Atlantic. US producer prices rose 0.4% month-over-month and 5.4% year-over-year in August. The most significant data came from energy: diesel jumped 24.1% in a single month, demonstrating how quickly the oil price shock can spread through the supply chain.
Following the price data, the market raised the probability of a Federal Reserve hike at the next meeting to around 85% . The shift in expectations had a direct impact on Treasuries: the yield on the 10-year US bond nearly touched the 5% mark, hitting 4.9915% .
Not even the U.S. Treasury has been able to reverse the trend. The announcement of a buyback of up to $6 billion in long-dated bonds has failed to reassure investors, who are worried about the combination of high deficits, large issuance volumes, and persistent inflation. When the risk-free yield approaches 5%, even the highest equity valuations become more difficult to sustain.
European stocks more fragile, Wall Street under pressure
The combined effect of oil and interest rates has quickly impacted the stock markets. On Wall Street, the S&P 500 lost 0.48% on Wednesday, with the energy sector among the few sectors holding up. The US market remains supported by relatively solid growth and the artificial intelligence theme, but rising yields are increasing the opportunity cost of equity investing.
The situation appears more delicate in Europe. The STOXX 600 fell 1.4% in the initial phase of the shock and subsequently hit a two-month low. Europe is simultaneously exposed to rising energy costs and the ECB's restrictive response: a combination that is compressing corporate margins, dampening consumption and investment, and making it more difficult to sustain high valuations.
Industrial raw materials: copper changes direction
Outside of the energy sector, copper also showed strong volatility. Rumors that the White House might delay or scale back new tariffs on refined copper caused the metal to drop more than 4% and trigger sell-offs among major mining groups. This movement is a reminder of how industrial commodities are now driven not only by global demand, but also by trade policy and supply chain security.
A market dominated by shock transmission
The underlying theme of these sessions is the transmission of geopolitical risk to the entire financial system. War pushes oil above $100, oil fuels inflation, inflation forces central banks to maintain a more restrictive policy, and high interest rates squeeze bonds and stocks.
For investors, the key issue is not just how long the conflict will last, but whether the energy premium will become structural. As long as Hormuz and Bab el-Mandeb remain under pressure, the market will have to live with an unfavorable combination: expensive energy, high yields, and more vulnerable growth. In this context, the ability of businesses and economies to absorb higher financial and energy costs will likely determine which markets are resilient and which are destined to suffer the most.