Oil Rises as US-Iran Tensions Escalate Again, Fueling Inflation Concerns

Oil rose after the US and Iran exchanged attacks over the weekend, renewing concerns about potential disruptions to crude supplies.

Brent crude gained 0.6% in Asian trading on September 6, Bloomberg reported. Iran said it had attacked three tankers using unauthorized routes through the Strait of Hormuz, along with several US-linked vessels, in retaliation for what it described as a US strike on an Iranian tanker.

Iran’s Islamic Revolutionary Guard Corps, or IRGC, did not disclose the extent of any damage from the attacks. It later claimed to have also struck a US Navy drone and an unmanned surface vessel that tried to enter the Strait of Hormuz. Mohsen Rezaei, one of Iran’s top security officials, said a new restricted zone outside the strait would be declared within days.

With the risk of a prolonged confrontation between Washington and Tehran increasing, markets are also growing more wary that higher energy prices could add to inflation pressures again. Bets on a Federal Reserve rate increase this month have already risen after stronger-than-expected US jobs data last week.

Focus is now shifting to the US consumer price index for August, due this week. Elias Haddad, chief markets strategist at Brown Brothers Harriman, said the Fed’s decision on whether to raise its benchmark rate on September 16 will depend on Friday’s August CPI report. If inflation comes in above expectations, the odds of a September rate hike would rise sharply.

US stocks showed only limited moves. Early in Asian trading, S&P 500 and Nasdaq 100 futures were little changed, while the dollar traded in a narrow range against major currencies. Cash trading in US Treasuries was closed for a US holiday.

In Asian foreign-exchange markets, the yen was also in focus. The Japanese currency traded around 156 per dollar. It climbed 2.4% last week on expectations for consecutive Bank of Japan rate hikes and the unwinding of carry trades. Markets are also speculating that Japan’s Government Pension Investment Fund may raise its target allocation to Japanese government bonds.