Trump rejects Iran ceasefire, oil spikes to $107 as strikes loom post-midterms

Key points

• Brent crude jumped 2.6% to $107.02, settling at $105.28, while WTI rose to $92.60.
• Trump rejected Iran’s offer to reopen the Strait of Hormuz within seven days in exchange for unfreezing assets and lifting sanctions.
• The US president stated he expects to resume bombing Iran after the November midterm elections.
• National average gasoline prices reached $4.48 per gallon, significantly higher than the $2.98 average in February.
• The Dow Jones fell 0.7%, and the 10-year Treasury yield rose to 5.263% amid inflation concerns.

Background

This escalation follows months of conflict, including strikes on the Strait of Hormuz and retaliatory attacks on US bases in March and September. Earlier in September, oil prices briefly dipped below $100 amid diplomatic hints, but the current rejection of the peace deal marks a sharp reversal. The Strategic Petroleum Reserve is at its lowest level since 1982, exacerbating supply concerns.

Why it matters

The rejection of the peace deal and the prospect of renewed strikes threaten to keep energy costs elevated, potentially driving inflation higher across food and apparel sectors. This could force the Federal Reserve to maintain or increase interest rates, impacting the broader economy and European energy security heading into winter.

What to watch

Investors will watch for the resumption of US strikes after the November midterms and any potential bans on diesel exports. Iran’s foreign minister has warned of a 'doomsday war' while maintaining openness to diplomacy, creating a volatile environment for global energy markets.