As the Middle East conflict enters its fourth day, oil prices have climbed further, while concerns over prolonged hostilities have led to sharp declines in UK and European stock markets, with US Treasuries following other bond markets lower. A commander of Iran's Islamic Revolutionary Guard Corps stated in a televised address that any vessel attempting to pass through the Strait of Hormuz would be destroyed, declaring, "We will not allow a single drop of oil to leave the region." Reports indicate that no tankers are currently transiting the Strait of Hormuz, and three British and American tankers have been attacked in the Persian Gulf and the Strait of Hormuz. The Strait of Hormuz, which connects the Persian Gulf and the Gulf of Oman, is a critical passage for crude oil exports from Middle Eastern producers such as Saudi Arabia, Iraq, Qatar, and the UAE. Approximately one-fifth of the world’s oil and liquefied natural gas (LNG) typically passes through this strait. Multiple tanker owners and traders have suspended the transport of crude oil, fuel, and LNG via this route. Data from international tanker traffic monitoring systems show that vessel speeds in the waters around the Strait of Hormuz have dropped to zero, indicating a complete halt in shipping activity. Several European governments have issued emergency directives to their flagged tankers in transit, prohibiting passage through the Strait of Hormuz to avoid security risks amid escalating tensions. Following Iran’s actions to block this key shipping route for oil and LNG, Brent crude rose to $82.50 per barrel, a new high since July 2024. European natural gas futures surged nearly 38% to €61.305 per megawatt-hour on Tuesday, after a 35% gain on Monday. The price increase is attributed not only to the closure of the Strait of Hormuz but also to Qatar’s suspension of LNG production due to Iranian attacks. Qatar is the world’s second-largest LNG exporter, accounting for nearly 20% of global supply, and its exports must pass through the Strait of Hormuz. In financial markets, major global stock indices declined. The UK’s FTSE 100 fell 2.2% on Tuesday, following a 1.2% drop on Monday. European equities saw similar losses, with Germany’s DAX down 3% and France’s CAC 40 down 1.8%. Airline stocks continued to suffer heavy losses due to flight disruptions caused by the conflict, while concerns over broader economic ripple effects weighed on banking shares. A chief investment strategist noted, "Pessimism is spreading across equity markets as the Middle East conflict escalates with global implications." The strategist specifically highlighted the UK market, pointing to growing concerns over sharp increases in gasoline prices and household energy bills, which could impact British families in the coming months. She added, "As the conflict expands, businesses are assessing the impact of severe regional disruptions on their operations, pushing the FTSE 100 deeper into negative territory." She also stated, "The resilience of global shipping is being tested once again, with more carriers suspending transit through the Red Sea as the crisis expands. This will significantly increase shipping times and costs, potentially leading to further supply chain disruptions." In Asian markets, Japanese and South Korean stocks fell sharply, with the Nikkei 225 closing down over 3%, losing more than 1,700 points, while the KOSPI dropped over 6%, triggering a circuit breaker during trading. Chinese A-shares also weakened, with the CSI 300 declining 1.54%. US stock index futures fell across the board, with Dow futures down 1.75%, S&P 500 futures down 1.80%, and Nasdaq futures down 2.31%. The US Dollar Index (DXY) strengthened for the second consecutive session, rising 0.86% to 99.23, bringing its weekly gain to approximately 1.3%. Meanwhile, the Middle East conflict triggered a global bond sell-off, with US Treasuries declining alongside other bond markets. The yield on 10-year US Treasuries rose 6 basis points to 4.09%, while equivalent maturity bond yields in the UK, France, and Italy increased by more than 10 basis points. Traders scaled back bets on Federal Reserve interest rate cuts, as escalating Middle East tensions drove oil prices higher and raised inflation concerns. Market expectations now point to only 43 basis points of Fed rate cuts this year, down from around 60 basis points priced in last Friday. This shift follows significant repricing in other markets, with traders fully ruling out a second rate cut by the Bank of England this year and leaning toward the possibility of the European Central Bank raising its key rate. However, the decline in US Treasuries has been milder compared to other bond markets, reflecting market confidence that domestic US energy production can cushion the economic impact of global supply shocks. An interest rate strategist noted that for the ECB, the primary concern is "slowing economic activity and the negative shock from energy prices, which could push inflation higher. For the Fed, the situation may be slightly different, as the US is an energy exporter." Nevertheless, the shift is abrupt, given that US Treasuries had just recorded their best monthly performance in a year, benefiting from safe-haven inflows partly driven by AI-related concerns and expectations of further Fed rate cuts. Given current inflation worries, the safe-haven appeal of US Treasuries is now seen as limited.