Oil prices stayed elevated on Tuesday after the Israel Defense Forces (IDF) confirmed that it did not participate in the latest US military strikes on southern Iran, an operation Washington earlier described as “defensive” amid the ongoing Middle East conflict.
The clarification came after markets reacted sharply to reports of renewed military activity in the region, with investors closely tracking the risk of further escalation around the Strait of Hormuz, one of the world’s most critical oil shipping routes.
Earlier, crude prices climbed after the US conducted strikes targeting missile-launch sites and boats allegedly involved in mine-laying activity near Iranian waters. At the same time, diplomatic efforts continued in parallel, with Iran’s top negotiator and foreign minister holding talks in Doha with Qatar’s prime minister regarding a potential framework agreement with Washington.
Despite the ongoing negotiations, both sides have tempered expectations of an immediate breakthrough. Until a formal agreement is reached, analysts expect oil prices to remain volatile, increasing pressure on inflation and global monetary policy.
The impact is already visible across financial markets. Investors are now pricing in the possibility of a 25-basis-point Federal Reserve rate hike by December, compared with expectations of multiple rate cuts earlier this year. The European Central Bank and Bank of England are also being watched closely as energy-driven inflation risks intensify.
In Asia, Sri Lanka’s central bank recently delivered a surprise 100-basis-point rate hike to stabilise inflation and support its currency amid rising global energy costs.
Meanwhile, Bank of Japan Deputy Governor Ryozo Himino said developments in the Middle East would influence future policy decisions, highlighting growing concern among central banks over geopolitical risks.
Investors are also watching upcoming US economic data, including the Conference Board’s Consumer Confidence Index for May, where higher fuel costs linked to the Iran conflict are expected to weigh on sentiment.
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