Amid escalating geopolitical and economic tensions worldwide, oil and gold prices have experienced notable fluctuations driven by a mix of trade uncertainties and developments in the global energy market. Initially, oil prices hovered near seven-week highs as investors closely watched trade negotiations between the US and China. Analysts suggested that a deal between the two largest economies could support global growth and increase oil demand, thereby boosting prices. Brent crude settled at $66.87 a barrel, while WTI closed at $64.98, marking their highest levels since early April.
Trade talks in London extended into a second day, with the US Commerce Secretary expressing optimism despite the possibility of negotiations stretching into Wednesday. At the same time, the World Bank cut its global growth forecast for 2025 to 2.3%, citing tariffs and growing uncertainty as major obstacles to recovery.
On the supply side, new allocations showed that Saudi Aramco would ship around 47 million barrels to China in July, a million fewer than in June, suggesting that the planned OPEC+ production hikes might not translate into significant additional supply. Although the group continues with its gradual output increases, a Reuters survey found the actual rise in May was limited, with Iraq producing below quota and both Saudi Arabia and the UAE falling short of their agreed boosts.
However, the situation shifted dramatically after Israel launched a series of airstrikes inside Iran, killing General Mohammad Bagheri, the Iranian army chief, and targeting the Natanz nuclear facility. This sharp escalation in the Middle East caused oil prices to surge, with Brent crude jumping by as much as 13% to exceed $78 a barrel, the biggest one-day gain since the early days of the Ukraine war in 2022.
In the midst of the chaos, gold rose by 1.8% to near record highs as investors rushed to safe haven assets. The US dollar also bounced back from recent lows, and demand for US Treasury bonds increased, even as rising oil prices stoked inflation fears.
Markets reacted strongly. The FTSE 100 dropped by 0.7%, with airline stocks hit the hardest. British Airways owner IAG fell 7.1%, and easyJet followed with a 5.6% drop.
A major concern for investors now is the Strait of Hormuz, a vital route through which nearly 20% of the world's oil passes. Iran, which exports around 1.6 million barrels per day, might retaliate against the Israeli attack by disrupting traffic through the strait, a move that could send oil prices soaring even further.
While global powers call for de-escalation, US President Donald Trump issued a stark warning to Iran, saying that if it refuses to strike a nuclear deal, it will face “slaughter.” He claimed that more brutal attacks are already planned unless Tehran comes to the table.
In this volatile mix of rising geopolitical risk and market instability, the world economy seems to be entering a new phase of uncertainty where oil prices and economic growth are tightly linked to the unfolding actions of global powers.