Oil Inflation and Bond Bleeding.. The Stock Market Avoids the Storm

Global markets entered September amid a fresh wave of anxiety over energy security and trade routes, as shipping traffic through the Strait of Hormuz plummeted to critically low levels. This coincided with a renewed confrontation between the United States and Iran, bringing the risk of oil supply disruptions back to the forefront of investors’ calculations. Oil prices rose, while global bond markets faced a sell-off that pushed yields to multi-year highs, a direct reflection of the repricing of inflation and interest rate expectations. This risk aversion also extended to the cryptocurrency market.

In contrast, the Kuwait Stock Exchange maintained its stability, posting a slight rise in its general index amid healthy liquidity, signaling the local market’s capacity to absorb external volatility despite the ongoing sensitivity of Gulf markets to oil developments and maritime routes.

**Brent Above $91**

Oil prices rose as fighting between the United States and Iran intensified, amid growing fears that energy supplies and oil infrastructure could face further disruptions. Brent crude futures rose 65 cents, or 0.72%, to $91.14 per barrel, while US West Texas Intermediate (WTI) crude rose 89 cents, or 1.04%, to $86.65. These gains followed a 2.7% settlement rise for Brent in the previous session, after it touched its highest level since August 25, while US crude rose 2.8% to its highest level since August 21.

The price movement reflects the return of what can be described as a “Hormuz premium” to the market. Investors are no longer viewing the conflict solely through a military lens, but rather as a direct threat to global energy flows and trade.

**Daily Shipments Drop to Five**

Data from Kpler tracking vessels showed that the number of commercial cargo ships crossing the Strait of Hormuz at the start of the week fell to approximately five per day. According to Reuters data published yesterday, shipping traffic remained at just five crossings, a level significantly below the ten-day average of around 14 ships. None of the crossing vessels were liquid tankers.

This adds a new dimension to the energy crisis. Continued low shipping traffic not only implies a potential drop in supplies but also increases shipping and insurance costs, raising the risk of energy reaching Asian and European markets. In a sign of persistent risks, two tankers carrying Saudi oil were attacked while exiting the strait, according to shipping reports and naval intelligence sources, further fueling concerns about the security of oil tanker movements.

**Washington Seeks Alternatives**

In an attempt to ease pressure on the US energy market, US President Donald Trump announced an agreement with Venezuela regarding oil reserves, suggesting it could help refill the US Strategic Petroleum Reserve, which has approached multi-decade lows.

**Bonds in the Crosshairs of Oil and Rates**

The repercussions of the energy shock did not stop at the oil market but quickly spread to global debt markets, where bond yields hit multi-year highs. Fears of inflation and rising investor bets on continued central bank tightening drove the sell-off. Bond prices fell in Japan and Australia, while the yield on Japan’s 10-year government bonds touched 3% for the first time since 1996.

In the United States, the sell-off pushed the yield on 10-year Treasury notes to their highest levels since January 2025, surpassing 4.75%, while the 30-year bond yield remained above 5%. Globally, the Bloomberg Global Aggregate Sovereign Bond Index rose to 3.72%, its highest level since mid-2008.

**Why Are Yields Rising?**

The key driver is rising oil prices. As energy costs increase, inflation risks grow, limiting central banks’ ability to cut interest rates or prompting them to consider tightening. These fears coincide with widening fiscal deficits in major economies and increased debt issuance, forcing governments to offer higher yields to attract investors. These developments indicate that markets are not just repricing oil, but globally repricing the cost of money.

**Crypto: Risk Appetite Recedes**

The risk aversion wave extended to the cryptocurrency market, which suffered a broad decline during Monday trading. Bitcoin fell more than 1% over 24 hours to $77,993.70, while Ethereum dropped 1.24% to $2,445.89. Binance Coin fell 1.70% to $686.60, Solana dropped 3.85% to $102.608, Ripple fell 2.61% to $1.3669, and Tron declined 2.37%.

**Gold Falls as Rates Compete for Safe-Haven Status**

In a notable paradox, gold fell despite ongoing geopolitical tensions, as investors focused on US labor market data that could determine the future path of interest rates. Spot gold fell 0.4% to $4,428.54 per ounce, while US crude futures fell 0.1% to $4,477.20. Markets are awaiting job openings data, the ADP employment report, and non-farm payrolls data in search of signals regarding labor market strength and the US monetary policy path.

**Kuwait Stock Exchange: Resilience**

The Kuwait Stock Exchange closed higher in a session characterized by divergence among major indices, with liquidity remaining at a healthy level of 81.8 million dinars. The General Market Index rose 6.32 points, or 0.07%, to 8,903.72 points, with 337.3 million shares traded across 24,963 cash transactions. The First Market Index rose 8.70 points, or 0.09%, to 9,297 points, with 127.3 million shares traded across 9,661 transactions valued at 42.5 million dinars.

Conversely, the Main Market Index fell 3.33 points, or 0.04%, to 9,227.14 points, with 209.9 million shares traded valued at 39.3 million dinars.

The stable performance of the Kuwait Stock Exchange is particularly significant amid the wave of volatility hitting global markets. Local stocks are moving between two contradictory factors: the Gulf economy benefiting from higher oil prices on one hand, and global investor appetite being affected by rising bond yields and the cost of money on the other. Thus, the exchange faces a new equation in September: high oil supporting revenues and results, versus high global interest rates pressuring valuations and liquidity.

**Warsh Stokes Tightening Bets**

Comments from US Federal Reserve Chair Kevin Warsh at Jackson Hole added a new catalyst to the bond sell-off. He emphasized the importance of containing inflation, affirming that price stability is at the core of the central bank’s mandate. His remarks raised market bets on the possibility of monetary tightening at the September meeting, especially if upcoming data shows persistent inflationary pressures. This comes as the US Treasury faces growing challenges due to rising borrowing costs and widening financing needs.

**Global Repricing of Interest Rates**

The repricing of interest rates is not limited to the United States. Investors are increasingly pricing in the possibility that global interest rates will remain at higher levels for longer. This equation means higher borrowing costs for governments, corporations, and individuals, alongside increased pressure on stock valuations and assets that benefited from cheap money in recent years.

**Government Spending Doubles Pressure**

Global bond markets are under continuous pressure due to concerns over high government spending levels in several major economies, particularly the United States, Japan, and the UK. With rising financing needs, investors are demanding higher yields to hold long-term bonds, while rising oil prices add a new layer of inflationary concerns.