US-Iran tensions are pushing oil above $91 a barrel while rising bond yields add to inflation concerns and keep global markets cautious.

Oil prices climbed and government bond yields rose on Tuesday after the US-Iran truce expired without a broader peace agreement, reviving concerns about energy supplies and adding to uncertainty across financial markets.

Brent crude futures rose 0.3 per cent to $91.14 a barrel, while US West Texas Intermediate gained 0.5 per cent to $85.04. Both benchmarks reached their highest levels since late July as investors assessed the risk of further disruption around the Strait of Hormuz.

The market response in equities remained relatively measured, but the combination of higher crude prices and rising borrowing costs has increased concerns over inflation, interest rates and economic growth.

Oil climbs on Hormuz risks

The Strait of Hormuz has become the main focus for energy traders as diplomatic efforts between Washington and Tehran lose momentum.

Reuters reported that only five tankers crossed the waterway on Saturday and none on Sunday, compared with 31 during the previous weekend. A prolonged reduction in shipping could tighten global energy supplies and put further upward pressure on crude prices.

Iran has warned that it could adopt a “fully offensive” military posture if diplomacy fails. Washington, meanwhile, has ruled out extending the temporary ceasefire arrangement, increasing uncertainty over the next stage of the conflict.

Bond yields raise concerns

Government bond markets have also reacted to the renewed geopolitical pressure.

Japan’s benchmark 10-year government bond yield climbed 2.5 basis points to 2.945 per cent on Tuesday, its highest level since September 1996. Rising oil prices have added to inflation concerns, while markets are also assessing the possibility of a Bank of Japan rate increase.

US long-term Treasury yields have also moved higher. The 30-year Treasury yield approached its highest level in nearly two decades as investors demanded greater returns amid inflation, fiscal and debt concerns.

Higher yields can increase borrowing costs for governments, companies and households while placing pressure on equity valuations.

Asian stocks stay resilient

Asian equities showed a mixed response to the renewed tensions.

The relatively limited reaction suggests investors have not yet priced in a major escalation. However, higher energy costs and bond yields have created a more difficult environment for markets that were already dealing with concerns over economic growth and monetary policy.

US stocks ended lower on Monday, with the S&P 500 falling 0.52 per cent and the Nasdaq Composite declining 0.31 per cent. Weaker US economic data also contributed to the cautious mood.

India faces oil pressure

The latest market movement has particular significance for India because the country remains highly dependent on imported crude oil.

Reuters reported that the Indian rupee could face additional pressure as Brent crude moves above $91 and US Treasury yields rise. Traders expected the rupee to open around ₹95.68-₹95.72 per US dollar on Tuesday after closing at ₹95.6025 on Monday.

Higher crude prices can increase India's import bill and add pressure to inflation, transport costs and the current account.

Indian equities were also expected to open largely flat, with GIFT Nifty indicating a subdued start after the Nifty 50 closed at 24,287.65 on Monday.

Markets watch diplomacy

Investors are now watching whether Washington and Tehran can reopen meaningful negotiations.

The expiry of the truce has raised fears that military activity could intensify, particularly around the Strait of Hormuz. Any sustained disruption to tanker traffic could push crude prices higher and feed inflation across major economies.

At the same time, markets will monitor central-bank responses because persistent energy inflation could limit expectations for interest-rate cuts.

Global volatility remains risk

The immediate market outlook will depend heavily on developments in the Middle East. A revival of diplomacy and normalisation of shipping could ease oil prices and bond-market pressure, while further escalation could produce another surge in energy costs.

For India and other oil-importing economies, the combination of expensive crude, weaker currencies and elevated global borrowing costs remains a key concern. As US-Iran tensions continue to unsettle energy markets, the US-Iran truce expiry is likely to remain a major driver of global financial sentiment in the days ahead.