Oil prices climbed on Tuesday after the US military conducted strikes in southern Iran, describing the action as defensive, even as diplomatic efforts to end the three-month-old war continued in parallel. Iran’s top negotiator and foreign minister were in Doha on Monday for talks with Qatar’s prime minister on a potential deal with Washington.
Both sides have played down hopes for an imminent breakthrough, keeping optimism in check. The dollar regained some of its safe-haven appeal while equity markets turned mixed.
The central focus for investors remains the Strait of Hormuz. Japan’s Nikkei reported that Washington and Tehran are discussing a plan to reopen the waterway approximately 30 days after a deal to end hostilities is reached, though details remain limited. Until a deal materialises, energy prices are expected to stay elevated, keeping pressure on businesses, consumers, and policymakers managing rising inflation.
The spillover into global monetary policy is becoming increasingly visible. Investors are now leaning toward a 25-basis-point rate hike from the Federal Reserve by December, a significant shift from the two cuts that were priced in at the start of 2026. The European Central Bank and the Bank of England are also seen moving toward tighter policy as energy-driven inflation feeds through.
Sri Lanka’s central bank moved first and more aggressively, raising its benchmark policy rate by an outsized 100 basis points in a bid to stem inflation and arrest sharp pressure on the currency.
Bank of Japan Deputy Governor Ryozo Himino said developments in the Middle East will factor into the central bank’s rate-hike timing, adding another layer of uncertainty for Asian markets.
On the data front, the Conference Board’s US Consumer Confidence Index for May is due later on Tuesday. The index is expected to edge down to 92, with higher gasoline prices driven by the Iran war likely to weigh on the reading.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making any investment decisions.