The reignition of the Iran conflict is pushing oil and fuels prices up worldwide again and is bringing back the inflation worries. In Romania the June yearly inflation receded a bit to 10.4% from 10.9%. Electricity jumped 59.97% year-on-year, an effect stemming from the elimination of price controls last year, with electricity, gas, and heating up 35.17%. Fuel prices remained elevated, diesel rose 28.16% and gasoline 22.74% compared to 12 months ago.
Iran's attempts to seal the Hormuz Strait again and the US strikes on several targets in the Islamic Republic have pushed up the prices of oil. After a minimum of $71.57 on July 1st, the Brent oil futures price with delivery in September reached almost $80 on Monday. Meanwhile, WTI crude fires reached almost $75. The markets are nervous that the supply shock will continue, but the prices are still in backwardation, meaning that traders are hoping to see a normalization of the prices in the near future. Recent times have shown us that peace brings prices down really quickly. From a maximum of almost $103 per barrel on May 18th, Brent crude oil travelled back in the $70s in less than two months.
The current increase in global oil prices is starting to be felt at the pump too, after a brief respite from the truce. According to the site peco online, in Romania, compared to last month, the average price of a liter of gasoline fell by 4.3% while for diesel, the average price per liter rose by 1.9%. The inflation data for June is showing that on a yearly basis, gasoline prices are up by almost 23% while diesel prices are up by over 28%. The increase in fuel prices will continue to impact inflation in Romania, which in June remained the highest in the European Union at 10.42%.
Lower inflation and AI were the two themes that drove the markets in the past year, and now inflation risks are back, and the AI sector is under pressure, worrying investors. In addition to the Iran crisis, the markets witnessed yesterday a selloff in the stocks of memory chip manufacturers supplying artificial intelligence. Memory and AI-related stocks declined sharply on Monday in the South Korean stock market. SK Hynix fell by more than 15%, while Samsung Electronics lost nearly 11%. In a single trading session, the enthusiasm that followed SK Hynix’s Nasdaq debut on Friday almost completely evaporated. The scale of the selloff was so severe that South Korea’s KOSPI index fell by around 9%, triggering a temporary trading halt. The selloff quickly spread to the US memory sector as well. SanDisk shares dropped nearly 13%, while Micron and Western Digital declined by more than 4%.
This week, investors will be kept busy not only by the start of the US earnings season but by the equally important US inflation data and Federal Reserve Chair Kevin Warsh’s testimony before Congress, too. The Consumer Price Index (CPI) will be released on Tuesday, followed by the Producer Price Index (PPI) on Wednesday. Both reports will be published shortly before Warsh’s appearances. On Tuesday, he will testify before the House Financial Services Committee, followed by the Senate Banking Committee on Wednesday.
Together, these releases and testimonies are poised to shape expectations for the Fed’s meeting in two weeks, with money markets currently assigning a 43% probability to a July rate hike and an over 51% probability for September. Any unexpectedly hawkish tone from Warsh could quickly lift those odds, while a more dovish stance would likely push them lower, setting the stage for heightened volatility as investors search for clearer policy signals. In the short term, Fed communication is likely to carry more weight for markets than any single data print. Softer inflation readings could ease rate worries and offer support to equities, but stronger-than-expected inflation or a hawkish message from Warsh may drive the US dollar and Treasury yields higher, putting a particular pressure on interest-rate-sensitive sectors such as technology.
In this environment of renewed geopolitical tension, the reignition of the Iran conflict risks turning today’s oil shock into tomorrow’s broader inflation shock. According to the latest eToro Retail Investor Beat survey, inflation is the main external concern for their portfolios for Romanian (24%) investors, while for investors worldwide, inflation is in third place (19%). In this context, the Gulf conflict adds another layer of uncertainty around the path of prices and interest rates. If the conflict escalates or the Strait of Hormuz remains constrained, the resulting energy-driven price pressures could complicate central banks’ fight against inflation just as they were hoping to declare victory, making the coming weeks critical for both policymakers and investors alike.
