U.S.-Iran Military Escalation Drives Oil Prices Higher

Oil prices rose by more than 3% on Monday as U.S. forces struck Iran for a ninth consecutive day. The attacks followed the collapse of an interim ceasefire signed one month prior and have intensified a struggle for control over the Strait of Hormuz. The escalation resulted in three confirmed American military deaths and raised significant concerns regarding the stability of energy shipping lanes.

Financial markets are reacting to the conflict alongside signals of tightening U.S. monetary policy. Gold prices remained steady or dipped slightly, with reports varying between a 0.3% drop to $4,004.63 per ounce and a steady price of $4,018.19 per ounce. The U.S. dollar remained broadly steady as investors balanced geopolitical risks against inflation concerns.

Cleveland Fed President Beth Hammack indicated that interest rates may need to rise to combat persistent inflation, which could be stoked by rising energy costs. This perspective has led traders to price an 82% probability of a December rate hike, increasing the opportunity cost of holding non-yielding assets like gold.