Stalled Hormuz talks push oil up 5%, Treasury yields higher

Stalled negotiations to reopen the Strait of Hormuz pushed Brent crude up 5 percent to $87.72 a barrel and lifted Treasury yields, as investors priced in a prolonged disruption to a waterway that carried a fifth of the world's oil before the war.

"Traders have been conditioned by the on-again, off-again nature of the negotiations and are waiting for tangible evidence, such as verified tanker movements or formal agreements, before further unwinding the risk premium," said Tim Waterer, chief market analyst at KCM Trade.

West Texas Intermediate climbed 5.1 percent to $82.13 a barrel, while the 10-year Treasury yield rose and the dollar held steady. Both benchmarks had fallen more than 7 percent last week on hopes that Iran and Oman were close to a deal. Iran said Sunday that a pact defining new shipping lanes was in its "final stages" but reiterated that the waterway would only reopen once Washington met other conditions, including compensation for its attacks.

The standoff threatens to feed inflation just as the Federal Reserve weighs its next move, with crude stocks in the U.S. Strategic Petroleum Reserve falling below 300 million barrels, the lowest since 1983. If talks remain stalled, oil could push higher and force the Fed to keep rates elevated; if a deal emerges, the risk premium could unwind quickly.

President Donald Trump told Axios on Sunday that the U.S. is "only semi-negotiating" with Iran, indicating he would rely on the naval blockade to pressure Tehran rather than another wave of airstrikes. Trump also said a "massive escalation" against Iran remained an option, deepening uncertainty over the path to reopening the strait.

Iran's Foreign Ministry spokesman, Esmail Baghaei, said Monday that the U.S. must lift its blockade before Tehran would agree to fully open Hormuz. "As long as the U.S. naval blockade continues, the necessary conditions for the reopening of the Strait of Hormuz do not exist," Baghaei said, according to the state news agency Tasnim. Foreign Minister Abbas Araqchi said Tehran will not start talks with Washington as long as it breaches an interim deal signed in June.

Supply threats widen beyond Hormuz

In a further threat to supply, the Iran-aligned Houthis said they hit Saudi Aramco's Jazan refinery on Sunday, two days after the kingdom signed a defense pact with Turkey and Pakistan. Separately, Abu Dhabi National Oil Co. said Friday that 15 of its vessels had been attacked transiting the strait since the conflict began.

The last time oil prices swung this sharply on Hormuz headlines was in June, when the U.S. and Iran signed a memorandum of understanding to open the waterway to commercial ships. That deal collapsed within days as fighting erupted over which routes vessels could use, with Tehran demanding ships sail through its territorial waters.

Rates and the inflation pass-through

The rise in oil feeds directly into the inflation outlook, with the 10-year Treasury yield climbing as investors trimmed bets on near-term rate cuts. A sustained move above $90 a barrel for Brent would add roughly 0.3 percentage point to headline inflation over the next year, complicating the Fed's path as it weighs its next decision.

For now, the dollar's steadiness suggests markets are pricing sustained geopolitical risk without panic. But prolonged uncertainty could pressure risk assets and global growth forecasts, with the next development being any formal agreement between Washington and Tehran or a further escalation in the conflict.

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