Oil surges 4% as US strikes Iran, stoking bond selloff across Asia

U.S. strikes on Iran's Bushehr region sent crude above $89 a barrel and triggered a selloff in Asia-Pacific government bonds as traders priced in prolonged inflationary pressure.

U.S. forces struck Iran's Bushehr region Wednesday after President Donald Trump declared a ceasefire dead, sending crude above $89 a barrel and sparking a selloff in Asia-Pacific government bonds.

"The market is pricing in a sustained risk premium that could keep oil elevated for weeks, not days," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "This is the most direct confrontation in the Strait of Hormuz since 2019."

WTI crude rose as much as 4.2% to $89.35 a barrel, while Brent topped $92.50. Government bonds across Asia-Pacific fell in price terms, with Australia's 10-year yield climbing 12 basis points to 4.58% and Japan's 10-year yield rising 6 basis points to 1.24%. The moves reflect growing concern that sustained oil price increases will feed through to core inflation, complicating central bank rate paths.

Kharg island, near the blast sites, handles about 90% of Iran's crude exports, while the Strait of Hormuz — through which about 21% of global oil trade passes — remains the critical chokepoint. Any sustained disruption could add $10 to $15 a barrel to crude prices, according to RBC, potentially delaying rate cuts from the Fed to the Reserve Bank of Australia.

The strikes mark a sharp escalation after weeks of relative calm. Trump said the ceasefire with Iran was "over" following attacks on three tankers in the Strait of Hormuz, according to the UK Maritime Trade Operations. Mediators Pakistan and Qatar, along with the United Nations, called for de-escalation as Iranian state media reported explosions in Bushehr, a coastal city that hosts Iran's only civilian nuclear power plant.

The last time the U.S. conducted direct strikes on Iranian territory was in 2020, when a drone strike killed Qassem Soleimani. In the following month, Brent crude rose about 12% before retreating as diplomatic channels reopened. The current escalation involves broader infrastructure risk, with Kharg island's export capacity directly threatened.

For Asian central banks, the oil price surge arrives at an inopportune moment. The Reserve Bank of Australia held rates at 4.35% at its July meeting, citing sticky services inflation, while the Bank of Japan has signaled a gradual normalization path. Higher energy import costs risk pushing headline inflation above targets across the region, forcing policymakers to delay or scale back easing plans.

The inflationary impulse from crude is already visible in breakeven rates. The 10-year U.S. Treasury inflation breakeven rate rose 8 basis points to 2.52%, reflecting increased inflation expectations. Asian currency markets also felt the pressure, with the Japanese yen weakening past 162 against the dollar and the Indian rupee touching a fresh low.

This article is for informational purposes only and does not constitute investment advice.