Oil prices climbed more than 3% on Monday morning, with Brent crude trading above $107 a barrel in European hours, as investors digested US President Donald Trump's rejection of an Iranian proposal to reopen the Strait of Hormuz. The international benchmark's surge reversed some of the relief seen late last week, when news of the offer had briefly calmed markets.
The White House's refusal to accept Tehran's seven-day truce—which would have seen the strategic waterway reopened—has revived fears of a prolonged supply crisis that has been pushing up costs for households and businesses across Europe and beyond. The Strait of Hormuz is a critical chokepoint for global energy shipments, and any disruption there has immediate ripple effects on fuel prices from Rotterdam to Singapore.
Trump's blunt rejection
Speaking to reporters outside the White House, Trump said, "I reject their proposal." In an interview with Axios published on Sunday, he added, "They want to make a deal, but it is not the deal that I want to make. It is what we would have maybe agreed to a year ago." He also accused Tehran of overplaying its hand, though he indicated that negotiations could resume. Axios, citing sources familiar with the matter, reported that indirect talks between Washington and Tehran might take place as early as Monday.
Iran has maintained its conditions for reopening the Strait of Hormuz, including the release of frozen assets, the lifting of sanctions on its oil exports, and an end to the US naval blockade. These demands were reportedly part of the proposal floated at last week's UN General Assembly, where Tehran had sought to ease the supply crunch that has rattled global markets.
The rejection comes amid heightened shipping risks in the Red Sea, where Houthi forces have seized territory along Yemen's coastline, including areas near the Bab al-Mandab Strait. That adds another layer of uncertainty to maritime routes that are vital for European energy imports.
Market fallout
Oil's rebound was swift: after falling more than 2% on Friday, Brent jumped over 3% in early trading, while US benchmark West Texas Intermediate rose nearly 2% to above $94 a barrel. The renewed spike in crude prices has intensified inflation worries, which are now weighing on stock markets across Asia and Europe.
In Asia, South Korea's Kospi fell 2.3% as it reopened after a holiday, while Japan's Nikkei 225 was nearly flat, edging down less than 0.1% near the close. Hong Kong's Hang Seng gained 0.7%, but the Shanghai Composite lost 1.8%. On Wall Street on Friday, the S&P 500 had added 0.5% to break a three-day losing streak, with the Dow Jones Industrial Average up 478 points and the Nasdaq Composite climbing 0.5%. That optimism has now faded.
The bond market is also flashing warning signs. The yield on the 10-year US Treasury briefly touched 5.21% early Monday, near its highest level since 2007, up from 3.97% before the conflict with Iran began. High yields make borrowing more expensive for everyone, slowing economic activity and undercutting stock valuations. Japanese 10-year bond yields were trading at 3.095% at the same time.
In currency markets, the US dollar strengthened to 157.69 Japanese yen from 157.19 yen, while the euro was little changed at $1.1388. Gold prices fell more than 2%, trading at $4,220 an ounce, as investors shifted toward riskier assets despite the uncertainty.
For Europe, the stakes are particularly high. The continent relies heavily on imported energy, and a sustained spike in oil prices would exacerbate the cost-of-living crisis that has already prompted a patchwork of national responses to record fuel prices. Any further disruption to shipping lanes could also affect supply chains for goods beyond energy, from chemicals to consumer products.
Analysts note that the rejection of Iran's offer does not necessarily close the door to diplomacy. "The president's comments suggest he sees room for negotiation, but on his own terms," said one market strategist in Frankfurt. "The question is whether Tehran is willing to bend on its core demands, and that remains highly uncertain."
With the Federal Reserve's next policy meeting scheduled for late October, inflation expectations are back in focus. CME's FedWatch tool now puts the probability of a second consecutive interest rate hike at more than 65%. Higher rates could further dampen economic growth, adding to the challenges facing European exporters and consumers alike.
As the situation develops, European policymakers will be watching closely. The bloc has already been grappling with energy security concerns, and a prolonged closure of the Strait of Hormuz would test its resilience. For now, markets are bracing for more volatility, with oil prices likely to remain sensitive to any news from Washington or Tehran.
