Oil and Gold Surge as Israel-Iran Conflict Raises Inflation Fears

Global markets are reacting sharply as military tensions escalate between Israel and Iran, raising alarms over prolonged conflict and its potential economic fallout.

Oil prices climbed higher on Monday, extending last week’s gains, as missile exchanges between Israel and Iran entered a fourth consecutive day. The conflict has reignited fears of supply disruptions from the oil-rich Middle East and sparked concerns over a fresh wave of global inflation.

The price of crude jumped as much as 13 percent on Friday following Israel’s unexpected airstrikes targeting Iranian military and nuclear facilities — strikes that reportedly killed several high-ranking officials and scientists. By Monday, both major oil benchmarks had risen another one percent in early Asian trading.

Gold prices also soared, approaching a record high of $3,500 an ounce, as investors rushed toward safe-haven assets amid rising geopolitical uncertainty. The precious metal was trading at around $3,450 by midday.

Market analysts say the sharp increase in oil could hamper efforts by central banks worldwide to rein in inflation. “While central banks might try to ignore short-term spikes in energy costs, sustained high prices risk pushing core inflation higher,” said Tony Sycamore, market analyst at IG. “This limits their room to cut interest rates, especially as growth slows due to Trump’s tariff policies.”

Investors are also watching closely as the U.S. Federal Reserve and the Bank of Japan prepare for key policy meetings this week. While both central banks are widely expected to hold interest rates steady, their post-meeting statements will be scrutinised for clues on future action — particularly with rising energy costs now back in the spotlight.

Despite the geopolitical tension, equity markets were mixed. Tokyo closed 1.3 percent higher, supported by a weaker yen, while markets in Hong Kong, Shanghai, Singapore, and Seoul also gained. However, Taipei, Jakarta, and Manila saw losses, and Sydney ended flat. European indices opened positively, with London, Paris, and Frankfurt all in the green.

Allen Good, director of equity research at Morningstar, said global oil supplies remain strong despite the conflict. “OPEC is increasing output, and although U.S. production growth has slowed, it could rebound if prices stay elevated,” he said. “A broader war remains unlikely for now, especially as the Trump administration has reiterated its commitment to talks with Iran.”

Elsewhere, investor attention is also focused on the Group of Seven summit in Canada, where leaders are expected to address the Middle East conflict and global trade concerns, particularly U.S. tariffs.

In corporate developments, shares in Nippon Steel rose over three percent after U.S. President Donald Trump approved its $14.9 billion merger with U.S. Steel, ending a protracted regulatory battle.