European, American, and Japanese bond markets are experiencing a sell-off; precious metals and European and U.S. stock markets are under pressure. If the Middle East situation further escalates, what chain reaction will global asset prices face?

A rather counterintuitive scene is unfolding across global markets today. Tensions in the Middle East are escalating. Based on past experience, the market’s first instinct would be: — Gold rises. — U.S. Treasuries rise. — Stocks fall. But what has actually occurred recently is: — Crude oil prices rise; — Government bond yields rise (i.e., bond prices fall); — Gold falls; — European and U.S. equity markets come under pressure. On September 1, Brent crude surged sharply, closing near $94.65; the yield on the U.S. 10-year Treasury rose to nearly 4.8%, while Japan’s 10-year JGB yield breached 3% for the first time in 30 years. Meanwhile, gold fell to a multi-week low amid rising dollar strength and real interest rates. Market pricing for a Federal Reserve rate hike in September briefly climbed to roughly two-thirds. So why isn’t gold rising—even as war looms? Because what the market truly fears has changed. It’s no longer simply: — Will the Middle East erupt into open conflict? but rather: — If oil prices spiral out of control again, how will global inflation respond? This is the key to understanding all subsequent asset-price movements. I. The real danger lies in an “oil price–inflation–interest rate” chain Assume tensions in the Middle East continue to escalate. What happens first? Naturally: crude oil. Because the Middle East is not just another geopolitical hotspot—it controls global energy transportation. Recent vessel traffic through the Strait of Hormuz has already shown marked volatility; two tankers carrying Saudi crude were recently attacked. What worries the market isn’t merely the loss of a few ships—but rather: — What if this globally most critical oil transit chokepoint becomes severely disrupted once again? — What if oil prices keep climbing? Then the following sequence unfolds: Rising oil prices → higher gasoline and diesel prices → increased transport costs → higher petrochemical feedstock prices → higher corporate operating costs → renewed upward pressure on CPI. Suddenly, the market realizes: — The anticipated rate-cut cycle may be delayed—or even reversed. Bonds are hit first. Because for a 30-year bond, if future inflation proves higher than previously expected, investors naturally demand higher yields. Higher yields mean lower bond prices. Thus, the simultaneous sell-off across U.S., European, and Japanese bond markets is no coincidence. It reflects a fundamental repricing: — Money in the future may be worth less than previously assumed; — Interest rates may remain higher—and stay higher—for longer than earlier projected. That is the most dangerous aspect of this market move. II. If oil prices continue rising, U.S. equities fear not war itself—but “valuation recalibration” Many say: — War breaks out → stocks inevitably fall. But reality is more nuanced. Historically, many localized conflicts have had little long-term impact on U.S. equities. What truly damages stock markets is when war reshapes interest-rate expectations. Suppose a tech company is expected to generate substantial profits far into the future. Why does the market assign it a P/E ratio of 40x, 50x—or even higher? Because discounting those distant future earnings back to present value hinges critically on interest rates. Lower rates → future cash flows are worth more today. Higher rates → future cash flows shrink dramatically in present-value terms. So if the U.S. 10-year Treasury yield continues rising from 4.8% toward even higher levels, the first to feel acute pain are typically: — High-valuation growth stocks whose profits lie far in the future. That’s why Nasdaq often reacts immediately when oil prices surge and Treasury yields climb—not due to mere sentiment, but because of a direct, mechanical valuation linkage.

The U.S.–Iran memorandum of understanding was signed—and torn up—just 20 days later; oil prices jumped 6%. Who bears the cost of Trump’s abrupt reversal?

Global oil prices spiked instantly by 6%. This is no ordinary diplomatic headline—it’s a wealth redistribution event: some reap windfall profits, while others quietly weep at the gas pump. 01 A memorandum that lived only 20 days On June 18, under mediation by Pakistan and Qatar, the U.S. and Iran signed this memorandum. In black-and-white terms, they agreed to a 60-day cooling-off period to negotiate a formal agreement. The core provisions were simple—just two points: — The U.S. would lift its maritime blockade on Iran and ease sanctions on Iranian crude exports. — Iran would fully reopen shipping through the Strait of Hormuz. Markets reacted positively: oil prices edged down slightly, and global equities breathed a sigh of relief—believing the Middle East’s powder keg had finally cooled. No one anticipated that this 60-day agreement would survive only 20 days. On July 7, three merchant vessels transiting the Strait of Hormuz came under attack. The U.S. military swiftly launched “a series of strong strikes,” hitting over 80 targets. On July 8, at the NATO summit, Trump uttered those now-famous words. From signing to annulment: exactly 20 days. 02 One sentence from Trump—and global markets tremble Trump delivered his declaration—“It is terminated”—with casual nonchalance. But markets responded with anything but calm. Oil: WTI and Brent crude futures shot up 6% in a straight line. Brent traded at $78.87/barrel; WTI at $74.96/barrel. Over the past two trading sessions, oil prices rebounded more than 10% overall. Gold: Spot gold plunged, briefly falling below $4,050/ounce. Equities: European markets tumbled en masse—Germany’s DAX index dropped 2.2%; France’s CAC 40 fell 2.1%. All three major U.S. equity index futures slid lower. U.S. Dollar Index: surged short-term, reclaiming 101. One sentence from Trump triggered a full repricing of major global assets. 03 Who profits—and who pays? Every shock creates winners and losers. Winners: U.S. oil & gas producers, defense contractors, and holders of U.S. dollar-denominated assets. For every $1 increase in oil prices, U.S. shale producers see billions of dollars in additional profit. Payers: Major oil-importing nations—including Europe, Japan, and China. Their businesses and consumers will feel the oil-price squeeze over the coming months. Under normal conditions, approximately 20 million barrels per day of oil and petroleum products pass through the Strait of Hormuz—roughly one-quarter of global seaborne oil trade—with about 80% destined for Asia.

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Europe Stocks Set to Fall as US-Iran Tensions Fuel Oil Rebound

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