Oil prices experienced a sharp increase on Monday after Iranian government-aligned media reported that Iran is suspending talks with the United States aimed at ending the ongoing war, raising concerns about global oil supply disruptions [1]. U.S. crude oil prices surged as much as 8.5% to nearly $95 per barrel, representing an almost $8 increase, while international Brent crude climbed 7.3% to over $97 per barrel, a $6 spike [1]. Heating oil, used as a proxy for jet fuel, rose 7%, and wholesale gasoline prices increased by 4% [1].
Despite a recent $0.24 drop in retail gasoline prices from this year's peak, gas prices remain 44% higher on average than before the war began [1]. The market reaction extended beyond energy, as government bond yields also rose: the 10-year U.S. Treasury yield increased from 4.4% to 4.51%, and the 30-year yield rose from 4.97% to 5.02%. Shorter-term bonds saw even sharper increases [1].
The market moves reversed two weeks of oil price declines that had occurred as U.S. officials suggested a potential deal with Iran was possible. However, with Tehran now suspending talks and protesting Israel's expanding offensive in Lebanon, the situation has escalated [1]. Iran further stated its determination to consider the complete closure of the Strait of Hormuz and the activation of other fronts, including the Bab el Mandeb Strait, both critical commercial waterways [1].
HSBC strategists noted that the (largely) closed Strait of Hormuz remains a key focus for commodity market observers. They highlighted that while commodity markets have so far absorbed the shock due to high inventories and trade redirection, a prolonged closure could deplete stocks to critical lows, potentially causing sharper price rises and genuine shortages [1]. For most of May, daily ship traffic through the Strait of Hormuz remained in the single digits, according to S&P Global Market Intelligence [1].
U.S. stocks fell slightly on Monday following the Iran war headlines, though losses were cushioned by gains in AI stocks after Nvidia's product announcements. The Russell 2000 index, which tracks smaller companies, fell 1% in morning trading [1].
CONCLUSION
The suspension of U.S.-Iran talks and Iran's threats to close key shipping straits have triggered a sharp rally in oil prices and higher bond yields, reflecting heightened market anxiety over potential supply disruptions. While commodity markets have so far managed the shock, analysts warn that a prolonged crisis could lead to critical shortages and further price spikes. Equity markets showed mixed reactions, with small caps underperforming amid the uncertainty.