Middle East tensions combined with tariff clouds lead to a spike and subsequent drop in oil prices, European stock futures decline, and the dollar hits a two-year low

On Thursday, June 12, European stock index futures fell by 0.7%. The US dollar index declined by 0.4%, reaching its lowest level since July 2023, with the Japanese yen and Swiss franc leading the gains. Gold benefited from safe-haven demand, rising by 0.6%, while US Treasury prices also increased. Asian stock markets, on the other hand, showed relatively calm performance.

According to Global Times, CBS reported on June 11 local time that multiple sources informed CBS that US officials were told Israel is fully prepared to launch military action against Iran. The report stated that the US expects Iran may retaliate against certain US military bases in Iraq.

Catalyzed by news of US-Iran tensions, Brent crude oil futures surged by 5% on Wednesday from the previous trading day's settlement price, reaching $70 per barrel, while WTI crude oil hit its highest level since April. On Thursday, oil prices continued to decline, with both Brent and WTI crude oil falling by about 1%, and Oman confirmed that the sixth round of US-Iran nuclear talks would be held on Sunday.

• The Euro Stoxx 50 index futures fell by 0.7%.
• The Nikkei 225 index closed down 0.6% at 38,173.09 points. The Topix index closed down 0.2% at 2,782.97 points. The Seoul Composite Index closed up 0.4% at 2,919.09 points.
• The Taiwan Stock Exchange Weighted Index closed down 0.8% at 22,287.82 points.
• The US dollar spot index fell by 0.4%, while the euro rose by 0.4% against the dollar to 1.1528.
• The Japanese yen rose by 0.6% against the dollar to 143.76, and the Korean won's appreciation against the dollar expanded to 1%.
• The British pound fell about 25 points against the dollar, currently at 1.3575. Data showed that the UK's GDP shrank by 0.3% month-on-month in April, with expectations of a 0.1% contraction, compared to a previous growth of 0.2%.
• The yield on 10-year US Treasury bonds fell by 1 basis point to 4.41%.
• The yield on 10-year Japanese government bonds remained unchanged at 1.455%.
• Spot gold rose by 0.6% to $3,374.54 per ounce.
• Oil prices continued to decline, with both Brent and WTI crude oil falling by about 1%, and Oman confirmed that the sixth round of US-Iran nuclear talks would be held on Sunday.

Escalating Tensions in the Middle East, Oil Prices Surge and Then Retreat

Global Times reported that the US expects Iran may retaliate against certain US military bases in Iraq. This is also part of the reason why the US earlier advised some Americans to leave the region. The US State Department has ordered the evacuation of non-emergency personnel from its consulates in Iraq due to "increased regional tensions." A London oil broker stated:

"Crude oil has clearly reacted to the news coming from the Middle East."

Jorge Montepeque, Managing Director of energy derivatives liquidity provider Onyx Capital, believes that the rebound in Brent crude oil on Wednesday was an "overreaction, indicating that the market is somewhat bearish and filled with anxiety." Here, "short interest" refers to bets that oil prices will fall On Thursday, crude oil continued to decline, with Brent and WTI crude both falling about 1%. Oman confirmed that the sixth round of US-Iran nuclear talks will be held on Sunday.

The surge in crude oil earlier this week broke the narrow trading range that had persisted for most of the past month, highlighting its sensitivity to geopolitical tensions. The Middle East produces about one-third of the world's oil, including Iran and OPEC+ member countries Saudi Arabia and Iraq.

So far this year, Brent crude has fallen about 7%, primarily impacted by the expectation that US-led tariff policies will erode demand, as well as OPEC+'s measures to restart idle production capacity. Zhou Mi, an analyst at the research institute affiliated with Chaos Tiansheng Futures Co., Ltd., stated:

"Geopolitical risk is currently the core driving factor. However, market surges triggered by geopolitical events often mark the beginning of a new round of declines."

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