Oil prices rose on Tuesday as negotiations between the United States and Iran over a peace deal and the reopening of the Strait of Hormuz reached an impasse, while Asian stocks moved cautiously amid persistent uncertainty over global inflation.
U.S. President Donald Trump responded on Monday to Iran’s conditions for a peace agreement by making his own demands, including compensation from Iran for people killed in wars, attacks and protests. The move added to tensions and could further complicate efforts to reopen the crucial waterway.
Brent crude futures rose to $88.09 a barrel, while U.S. crude futures climbed to $82.52, with both reaching their highest levels since July 31. The contracts had already gained around 5% on Monday.
Stay ahead of the geopolitical week.
MD Briefing delivers expert analysis across five global fronts — the Indo-Pacific, energy, geoeconomics, European security, and the Middle East — every Monday morning. Free.
“We’re now in a bit of a Mexican standoff,” said Tony Sycamore, a market analyst at IG, describing the situation as a struggle over which side would make the first concession.
He said oil markets could remain between roughly $75 and $95 a barrel while investors wait for signs of progress in negotiations.
Oil adds to inflation concerns
The renewed rise in fuel prices comes just ahead of the U.S. July consumer price report, due on Wednesday. Economists expect headline consumer prices to rise 0.1% month-on-month, while core inflation is expected to increase 0.2%.
A stronger-than-expected inflation reading could revive expectations of a Federal Reserve rate hike next month.
“We think the risks are skewed towards a hot print,” said Jonas Goltermann, chief markets economist at Capital Economics, warning that higher inflation could push up rate expectations and revive concerns about stagflation.
The combination of elevated energy prices and persistent inflation creates a difficult environment for central banks. Higher oil prices can raise transportation and production costs, feeding into broader consumer prices and potentially limiting the scope for interest-rate cuts.
Asian stocks remain cautious
Asian equities were mixed as investors assessed the consequences of the prolonged U.S.-Iran standoff.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.36%, while South Korea’s KOSPI gained 1.3%. Hong Kong’s Hang Seng Index fell 0.6%, while China’s CSI300 blue-chip index eased 0.05%.
Nasdaq futures rose 0.34% and S&P 500 futures gained 0.13% after Wall Street ended lower on Monday.
Markets are also watching developments in the technology sector. Nvidia said it had partnered with six major financial institutions to launch financing platforms aimed at raising more than $500 billion in third-party capital for artificial intelligence infrastructure.
The scale of the planned financing highlights the enormous investment flowing into AI, but it is also raising questions about whether the sector’s rapid expansion could create new financial risks.
RBA keeps rates unchanged
Australia’s central bank kept its cash rate unchanged at 4.35% for a second consecutive meeting, saying the economy was slowing as expected but warning that another rate increase could still be necessary if inflation remains persistent.
The decision reflects the wider challenge facing central banks as energy prices rise while economic growth remains uneven.
Yen remains under pressure
Currency markets also remained focused on the Japanese yen, which weakened beyond 159 per dollar and remained well below last week’s level of around 155.20 after several suspected interventions, including a joint Japan-U.S. operation.
Nomura analysts said markets remained alert to the possibility of further intervention, making a move above 160 in the near term less likely.
The dollar gained marginally as oil prices rose, while the euro traded around $1.1541 and sterling eased to $1.3511.
The Australian dollar also slipped following the Reserve Bank of Australia’s decision, falling 0.07% to $0.7049.
The market reaction shows how closely energy security, inflation and monetary policy are now interconnected. The longer the United States and Iran remain locked in negotiations without an agreement on Hormuz, the greater the risk that elevated oil prices become a persistent inflationary pressure rather than a temporary shock.
The Strait of Hormuz is particularly important because prolonged disruption would affect not only oil prices but also shipping costs, fuel availability and inflation expectations across major economies. That could complicate the calculations of central banks already trying to balance inflation against slowing growth.
For investors, the immediate question is therefore not simply whether oil prices will rise further, but whether the U.S.-Iran stalemate lasts long enough to change expectations for interest rates and global growth. A prolonged impasse could turn a geopolitical crisis into a broader economic problem, forcing markets to price in higher inflation, tighter monetary policy and weaker growth simultaneously.
With information from Reuters.
