Oil prices surged to $97.58 a barrel on Monday after Iran announced it would cease exchanging messages with the United States until Israel ends its operations in Lebanon and Gaza. The move dashed hopes of a breakthrough in peace talks and reopened fears of supply disruptions through the Strait of Hormuz.
Brent crude climbed from $92 at the end of last week, approaching the $100 mark. The IRGC-affiliated Tasnim news agency reported that Iran's negotiating team is pulling out of mediator-facilitated exchanges with the US over Israel's offensive in Lebanon.
The oil price jump has fuelled inflation fears, pushing UK 10-year government bond yields up to 4.88% from 4.81% on Friday. The London stock market fell, with housebuilders Persimmon down 4.2% and Barratt Redrow off 3.2% on concerns that higher borrowing costs will weaken housing demand.
UK house prices fell 0.6% in May, the first monthly decline this year, according to Nationwide. Prices are still 1.7% higher than a year earlier, but rising mortgage rates are hurting buyer demand.
The dollar strengthened as investors sought safe havens, pushing the pound down half a cent to $1.341 and the euro to $1.16. Chris Beauchamp of IG warned that oil could breach $100 again if tensions escalate, putting pressure on equity markets.
