THE NEW YORK TIMES: Oil price soars to highest level in months as stocks, bonds slump

The price of oil rose to the highest level in months and stocks and bonds slumped Thursday as the escalating war in the Middle East and intensifying fears about inflation weighed on investors.

Oil prices surged to $US109 a barrel, about a 50 per cent increase since the start of the war in Iran in late February. The rise in energy costs threatens to push prices up more broadly, squeezing consumers and businesses already grappling with stubbornly elevated inflation.

Investors are looking to a crucial report on US inflation, set for release Friday, that could alter expectations for the Federal Reserve’s decision on interest rates at its meeting next week. Traders believe that a rate increase is more likely than not. The European Central Bank raised its key interest rate Thursday, the second time it increased rates since the war began.

Fears of accelerating inflation and forecasts for higher Fed rates have been major factors behind a steady rise of bond yields. The yield on the 10-year Treasury note, a measure of borrowing costs that influences mortgages, business loans and many other types of debt, jumped above 4.9 per cent Thursday, the highest level since 2023.

The effect of rising yields, which move inversely to prices, is apparent in the housing market. The average 30-year fixed-rate mortgage, the most common home loan in the United States, hit 6.76 per cent this week, the highest level in more than a year, according to mortgage financing giant Freddie Mac. Sales of existing homes fell 2% in August from the month before, the National Association of Realtors said Thursday.

“Americans are hitting the pause button on home buying,” said Heather Long, the chief economist at the Navy Federal Credit Union.

The S&P 500 fell about half a percent at the close of trading Thursday, the fourth consecutive decline for the benchmark stock index.

The latest turmoil on Wall Street was provoked, in part, by reports from Yemeni officials Thursday that the Iranian-backed Houthi militia had captured a port city, giving it greater control over passage through the Bab el-Mandeb Strait at the southern end of the Red Sea. Saudi Arabia had been using this route to export its oil and bypass the Strait of Hormuz, the narrow waterway between the Persian Gulf and the Gulf of Oman.

The continued disruption to shipping in the Persian Gulf and Red Sea has snarled the global supply of energy, with few signs of an end in sight. President Donald Trump said on Wednesday that the fighting would continue through the November mid-term elections in the United States.

Shipping traffic through the Strait of Hormuz, which carried a fifth of the world’s oil supply and a significant amount of natural gas before the war, is still running at a small fraction of pre-war levels. Twelve ships passed through the strait Wednesday, compared with more than 130 per day before the war, according to Kpler, a maritime information company.

Oil exports from Saudi Arabia, long the world’s biggest oil exporter, fell last month to their lowest levels in at least 13 years, according to Kpler.

With Iran targeting tankers in the Persian Gulf and the Houthis targeting Saudi tankers in the Red Sea, Saudi Arabia is now exporting more oil north through the Red Sea via the Suez Canal. This route is longer and costlier, but Saudi Arabia has few good options.

Fawaz A. Gerges, a professor at the London School of Economics, said the Houthis viewed the war in Iran as their best opportunity to consolidate power and completely cut off the route that Saudi Arabia just months ago considered a lifeline for its oil exports.

“If this descends into all-out war, this could have catastrophic implications,” he said.

U.S. gasoline prices rose Thursday to a national average of about $4.28 a gallon, according to the AAA motor club. Drivers are paying 44 per cent more on average for gas than when the war began. The average price of diesel also climbed, to $5.98 a gallon, up 59 per cent since the start of the war.

The market is still pricing in persistent geopolitical risks, “with Persian Gulf tensions showing no credible path to de‑escalation,” analysts at ING wrote in a research note. “If anything, current signals point to further escalation, keeping upside pressure firmly in place.”