Oil prices 4pc up over new Middle East tensions

Oil prices surged nearly four percent on Thursday while global equities fell sharply as fresh concerns over a possible US military strike on Iran reignited inflation fears and heightened geopolitical uncertainty.

The market sell-off followed losses on Wall Street, where technology stocks retreated from recent gains amid concerns over rising borrowing costs and escalating tensions in the Middle East.

Crude prices had started the week lower after signs emerged that Middle Eastern oil exports were returning toward pre-war levels and that G7 nations had agreed to release supplies from their strategic reserves.

However, sentiment deteriorated after reports indicated that Iran had stepped up attacks on oil tankers in the Strait of Hormuz. Yemen's Houthis also rejected claims that they had lost key territory, while senior oil officials warned that global reserves were falling to dangerously low levels.

Adding to market anxiety, The Atlantic reported on Wednesday that the White House had asked the Pentagon to prepare options for potential strikes on targets in Iran ahead of the November 3 US midterm elections.

The report said the scale and targets of any operation remained under discussion, while a broader military campaign could potentially follow the elections. It also said supporters of the strikes did not expect them to immediately bring Tehran back to negotiations or reopen the Strait of Hormuz, but believed military action could demonstrate strength ahead of the vote.

Both major crude benchmarks jumped almost four percent on Thursday. Oil prices were also supported by concerns over disrupted supplies after parts of US Gulf of Mexico production were shut down as Tropical Storm Isaias approached.

A decision by International Energy Agency members to make additional oil reserves available did little to calm traders, who remained concerned about tightening global supplies.

The surge in crude prices renewed fears of a broader inflationary shock and pushed government bond yields to multi-year highs.

Wall Street's three major indexes closed lower on Wednesday, with the S&P 500 and Nasdaq retreating from record levels. Asian markets followed the decline, with Tokyo, Hong Kong, Sydney, Shanghai, Singapore, Seoul, Mumbai, Wellington, Taipei, Bangkok and Manila all posting significant losses.

European markets also extended the sell-off, with London, Paris and Frankfurt opening lower on Thursday.