Oil Prices Climb Amid Fears of Israeli Strike on Iran and Middle East Supply Disruption

Commodity

Summary:

Oil prices rose over 1% as reports emerged of Israel preparing to strike Iranian nuclear facilities, prompting investor concerns over potential supply shocks in the Middle East and disruptions to global oil flows....

Geopolitical Tensions Trigger Sharp Rise in Oil Prices

Oil markets opened Wednesday with a notable upward surge after U.S. intelligence reports indicated Israel may be preparing to launch a strike on Iran’s nuclear infrastructure. Brent crude for July delivery rose by 1.32% to $66.24 per barrel, while West Texas Intermediate (WTI) crude for the same month climbed 1.45% to $62.93. The immediate price reaction reflected market fears that a military conflict could directly impact one of the world’s most strategically sensitive energy corridors.

The price jump was more pronounced during initial trading, with U.S. crude futures gaining over $2 a barrel and Brent rising by more than $1 shortly after the CNN report. The volatility underscores how sensitive global energy prices remain to geopolitical risks—particularly those originating in the Middle East.

Potential Impact on Iranian Output and Regional Supply Routes

Iran, OPEC’s third-largest producer, plays a critical role in global crude supply. An Israeli airstrike on Iranian nuclear sites could severely disrupt Iran’s production and export capacity. Compounding these fears is the strategic significance of the Strait of Hormuz, a narrow chokepoint through which roughly a fifth of global oil supply passes. Should Iran retaliate by blocking this passage, the impact on global oil logistics would be immediate and severe, with major exporters such as Saudi Arabia, the UAE, Kuwait, and Iraq also affected.

The market reaction suggests a causal relationship between the perceived likelihood of a military strike and upward pressure on prices, driven by risk premiums on future supply disruptions. The extent of the price response appears proportional to the perceived severity of the threat and the uncertainty about its escalation.

Mixed Fundamentals: U.S. Inventory Builds Versus Global Tightness

Despite geopolitical jitters, underlying supply dynamics remain somewhat mixed. According to the American Petroleum Institute, U.S. crude inventories rose by 2.5 million barrels in the week ending May 16, signaling potential short-term easing of domestic supply concerns. However, gasoline and distillate stocks declined, reflecting steady downstream demand and tighter refined product markets.

Investors are awaiting more definitive data from the U.S. Energy Information Administration, due later Wednesday, which could either reinforce or temper the current bullish sentiment depending on the reported trends in storage and refinery utilization.

OPEC+ Dynamics and Kazakhstan’s Divergence

Further complicating the supply outlook, Kazakhstan—an OPEC+ member—reported a 2% increase in May oil output. This move defies the bloc’s ongoing strategy of production restraint aimed at stabilizing global prices. While Kazakhstan’s individual production volume is relatively modest, its noncompliance introduces a risk of fragmentation within OPEC+, especially if other members interpret this as a signal to pursue independent output policies.

Although this development may provide marginal relief to supply-side pressures, it is unlikely to offset the broader geopolitical risks that currently dominate market sentiment.

The latest spike in oil prices highlights how quickly geopolitical risk can reassert itself as a dominant driver of energy markets. While inventory builds and non-OPEC+ production gains offer short-term buffers, the possibility of Israeli military action against Iran has rekindled fears of a supply shock that could reverberate far beyond the Gulf. Until clarity emerges regarding Israel’s intentions and Iran’s response, markets will likely remain on edge, with risk premiums embedded in pricing across the crude complex.

Source: Reuters

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[Quick Facts]

1. Israel prepares to strike Iranian nuclear facilities, but final decision yet to be made

2. Iran's supreme leader advises U.S. to cut the crap

3. EU and UK announce new round of sanctions against Russia

4. Japan's 20-Year Government Bonds see worst auction since 2012

5. Knot: Another rate cut in June "can't be ruled out"

6. EU has announced the lifting of economic sanctions against Syria

7. Japan's exports to U.S. fell in April for first time in four months

8. Some House Republicans remain reserved on tax bill

9. Fed officials warn of full impact of tariffs

[News Details]

Israel prepares to strike Iranian nuclear facilities, but final decision yet to be made

According to CNN, multiple U.S. officials have indicated that the U.S. has obtained new intelligence suggesting Israel is preparing to strike Iranian nuclear facilities. U.S. officials have stated that such a strike would represent a significant divergence from President Trump's policies and could potentially escalate the existing tensions in the Middle East, which the U.S. has been attempting to de-escalate since the onset of the Gaza conflict in 2023. Officials caution that it remains uncertain whether Israeli leadership has made a final decision, and significant disagreement exists within the U.S. government regarding the likelihood of Israeli action. Israel's approach to Iran, including the potential for military action, may be influenced by its assessment of U.S.-Iran nuclear negotiations. However, a source noted, "The likelihood of an Israeli strike on Iranian nuclear facilities has increased significantly in recent months." The failure of U.S.-Iran negotiations to eliminate all of Iran's uranium has increased the possibility of an Israeli strike.

Iran's Supreme Leader advises U.S. to cut the crap

On May 20, Iranian Supreme Leader Ali Khamenei cautioned U.S. representatives involved in indirect negotiations to avoid excessive rhetoric. He deemed the U.S. stance against Iranian uranium enrichment as absurd, asserting that Iran does not require U.S. authorization to pursue its policies. Iranian Foreign Minister Araqchi echoed these sentiments, characterizing the U.S. position as illogical and unreasonable, and uranium enrichment as non-negotiable. This follows recent statements by U.S. Special Envoy for Iran Witkoff, who reiterated that the U.S. maintains a "red line" against any Iranian uranium enrichment, including enrichment levels as low as 1%.

EU and UK announce new round of sanctions against Russia

On the 20th, the EU and the UK separately announced new sanctions against Russia, with a focus on the Russian energy, military, and financial sectors. The Council of the EU issued a press release on the 20th, stating that the 17th round of sanctions against Russia had been formally adopted, including sanctions against 189 Russian "shadow fleet" vessels, prohibiting their docking in EU ports and ceasing related maritime services. This represents the largest package of sanctions against the "shadow fleet" to date. Currently, the number of Russian vessels sanctioned by the EU has reached 342. The UK Foreign Office announced a new round of sanctions against Russia on the 20th, covering key sectors such as the Russian military, energy, and finance, as well as individuals and institutions involved in information warfare against Ukraine. According to the UK Foreign Office statement, the UK coordinated its actions with the EU to implement this new round of sanctions against Russia. In a statement, British Foreign Secretary Lammy stated that the UK calls on Russia to immediately agree to a comprehensive and unconditional ceasefire to initiate negotiations.

Japan's 20-Year Government Bonds see worst auction since 2012

The Japanese 20-year bond auction experienced its weakest performance since 2012, with the bid-to-cover ratio declining to 2.5, a decrease from the previous month's 2.96. The tail spread surged to 1.14 from April's 0.34, reaching its highest level since 1987. Consequently, the yield on Japanese 20-year bonds increased by approximately 15 basis points, reaching its highest level since 2000. The yield on 30-year bonds also rose to its highest since the initial issuance of this maturity in 1999, while 40-year bond yields hit record highs. Conversely, short-term Japanese bond yields saw a slight decrease. Amidst these market fluctuations, the Bank of Japan faces the dilemma of whether to continue its quantitative tightening policy. Proceeding with this policy could further elevate yields, leading to substantial unrealized losses for bondholders. Conversely, abandoning quantitative tightening may result in uncontrolled inflation and a collapse of the yen.

Knot: Another rate cut in June "can't be ruled out"

During a Tuesday address, ECB Governing Council member Knot indicated the potential for further reductions in borrowing costs next month, while cautioning that a decision was "premature" absent the latest quarterly projections. This Dutch official characterized the situation facing policymakers as a "complex challenge." He cautioned that U.S. trade policies present both demand and supply shocks, with the latter potentially elevating inflation in the medium term. "We are still awaiting the latest projections," Knot stated to reporters in Amsterdam. "Therefore, I cannot rule out a rate cut in June, but I also cannot confirm it, as we must also consider medium-term factors."

EU has announced the lifting of economic sanctions against Syria

On the 20th, the Council of the European Union issued a statement announcing the lifting of economic sanctions against Syria. The statement indicated that the time had come for the Syrian people to unite and rebuild a "new Syria that is inclusive, pluralistic, peaceful, and free from harmful external interference." While removing economic sanctions, the EU will maintain sanctions targeting the Assad regime and those based on security considerations. Additional targeted restrictive measures will be implemented against human rights violators and those contributing to instability in Syria.

Japan's exports to U.S. fell in April for first time in four months

Japan's exports to the U.S. declined in April, marking the first decrease in four months, as the impact of higher tariffs began to materialize. Data released by the Ministry of Finance on Wednesday indicated a 1.8% year-on-year decrease in exports to the U.S. in April, reflecting reduced demand for automobiles and machinery, including semiconductor manufacturing equipment. This downturn follows a 3.1% increase in March and represents the first decline since December of the previous year. Overall Japanese exports grew by 2.0% in April, a decrease from the 4.0% growth in March and below the market expectation of 3.1%. The government is under pressure to negotiate tariff reductions with the Trump administration to support the manufacturing sector. Earlier data revealed that the Japanese economy contracted in the first quarter. While Japan has consistently maintained a trade surplus with the U.S., this surplus has been diminishing in recent months. The trade surplus with the U.S. for April was 780.6 billion yen (US$5.4 billion), compared to 846.86 billion yen in March.

Some House Republicans remain reserved on tax bill

U.S. President Trump pressed Republican colleagues in Congress on Tuesday to unify in support of a comprehensive tax cut bill, but he apparently failed to persuade a minority of dissenting Republicans, who may still block the package encompassing most of Trump's domestic agenda. During a closed-door meeting on Capitol Hill, Trump directly warned House Republicans against further amendments to the extensive bill. He strongly cautioned against further restrictions on Medicaid eligibility. According to an anonymous source present, Trump told Republicans, "Don't mess with Medicaid." Trump also discouraged Republicans from seeking further reductions in state and local taxes. However, this issue is particularly significant for moderate Republicans from high-tax states such as California and New York.

Fed officials warn of full impact of tariffs

Atlanta Fed President Bostic stated on Tuesday that corporate "buffer strategies" against high tariffs are diminishing, potentially leading to renewed inflationary pressures in the U.S. economy.

Meanwhile, St. Louis Fed President Musalem indicated that tariffs remain a key factor influencing the short-term economic outlook, potentially weakening overall economic activity and exacerbating labor market softness. Despite the May 12 announcement of a temporary tariff reduction between the U.S. and China, tariffs could still significantly impact the near-term economic outlook.

Tariffs will likely restrain economic activity to some extent, contributing to further labor market weakness. However, the Federal Reserve's current monetary policy is "well-positioned" to respond to any shifts in the economic outlook, provided inflation expectations remain anchored near the Fed's 2% target.

[Today's Focus]

UTC+8 14:00 UK April CPI

UTC+8 00:00 Richmond Fed President Barkin

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Gerik

Economic

China–U.S. Trade War

Foreign Capital Rapidly Shifts Toward China

A striking reallocation of global capital is underway. Data from China’s State Administration of Foreign Exchange (SAFE) reveals that foreign investors poured $17.3 billion into Chinese assets in April 2025, reversing months of withdrawal. This includes $10.9 billion in government bonds and a notable return to Chinese equities, signaling renewed confidence in the country’s macroeconomic prospects.

This influx reflects a sharp pivot in investor sentiment. Only weeks prior, the United States remained a dominant destination for safe-haven capital. But in the wake of rising fiscal uncertainty, higher Treasury yields, and a downgraded credit rating by Moody’s, capital has begun flowing toward emerging Asian economies—chiefly China.

Fiscal Anxiety Weakens U.S. Financial Standing

Investor concerns about the sustainability of U.S. public finances have surged following a downgrade by Moody’s from Aaa to Aa1. Deutsche Bank’s assessment on May 20 explicitly warned that the U.S. debt trajectory is unsustainable, likening the downgrade to a “crack in the wall” of global confidence in America’s fiscal strength.

Exacerbating these concerns, the 30-year U.S. Treasury yield recently breached 5%, its highest level since 2023. This spike suggests that investors now demand a significant premium to hold long-term U.S. debt—traditionally seen as a benchmark for global creditworthiness.

The timing is pivotal. President Trump’s announcement on April 2, dubbed "Liberation Day," introduced sweeping new tariffs that disrupted global trade sentiment. Coupled with inflation risks and rising fiscal deficits, the structural advantages of U.S. debt markets appear increasingly diminished.

China Emerges as a Relative Safe Haven

In contrast to the instability in Washington, China’s economy is showing early signs of revival. April economic data pointed to a rebound in manufacturing and industrial activity, reinforced by the temporary 90-day U.S.–China tariff truce. This has prompted major investment banks to upgrade China’s 2025 GDP forecasts, attributing growth not only to internal momentum but also to renewed international capital inflows.

The strategic appeal of China stems from a perceived combination of economic stability and political predictability, especially relative to the U.S. where bipartisan gridlock is expected to intensify fiscal strain. Bank of America’s May 17 report affirmed this shift, citing a weaker dollar, peaked U.S. yields, and China's cyclical recovery as key reasons why "the time has come for emerging markets."

Investor Sentiment Favors Asia

The redirection of capital extends beyond China. Larry Tentarelli, founder of the Blue Chip Daily Trend Report, identified strong investment prospects in India, South Korea, and Taiwan as well. This reflects a broader recalibration of investor expectations, shifting away from U.S.-centric asset allocation toward a more Asia-oriented strategy.

However, the optimism is not without risks. Tentarelli also cautioned that unresolved U.S.–China trade tensions could disrupt this momentum if negotiations stall in the next three to six months. Moreover, the inflationary effects of tariffs in the U.S. are still unfolding and may further destabilize domestic markets.

Tax Policy Could Exacerbate U.S. Deficits

Bank of America also warned that upcoming tax reform proposals may dramatically worsen the U.S. fiscal outlook. Preliminary Senate drafts of the new tax cuts are expected to deepen the federal deficit to between 7–8% of GDP annually over the next decade—well beyond the 3% threshold previously outlined by Treasury Secretary Scott Bessent.

If implemented, these measures could accelerate the loss of investor confidence in U.S. fiscal management, reinforcing the trend of capital outflows toward markets perceived as more disciplined or economically resilient.

Foreign investors are signaling their loss of patience with U.S. fiscal policy by reallocating capital toward Asia—led by China. The $17.3 billion influx in April marks a symbolic and material shift in global investment dynamics. As structural deficits and aggressive trade policies erode confidence in American assets, China’s relative macroeconomic stability, aided by a temporary truce and revived growth, is positioning it as an increasingly attractive destination. The trajectory of global capital flows in 2025 may well hinge on how Washington manages its fiscal credibility and whether Beijing can sustain its recovery without reigniting geopolitical friction.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Alexander

Key points:

● Canadian finance chief says tensions over US tariffs to continue

● G7 to discuss combating non-market practices, Champagne says

● Canada pledges financing, pension support for Ukraine

Finance ministers from the Group of Seven industrial democracies will try to agree on policies to restore global growth and stability, Canadian Finance Minister Francois-Philippe Champagne said on Tuesday, acknowledging that tensions over newU.S. tariffswould continue.

The meetings over the next two days in the mountain resort town of Banff, Alberta, will be about "back to basics" and will include discussions about excess manufacturing capacity, non-market practices and financial crimes, Champagne told a news conference.

"I think to deliver for the citizens that we represent, our mission is really about restoring stability and growth," Champagne said

He said discussions would take place within the G7 and bilaterally with U.S. Treasury Secretary Scott Bessent about the impact of PresidentDonald Trump'snew tariffs on trading partners, and that there would always be tension around such issues.

"But at the same time, there's a lot we can achieve together," Champagne said. "There's a lot that we are looking to coordinate, our actions, and really tackle some of the big issues around over-capacity, non-market practices and financial crimes."

Bessent has sought to push G7 allies to more effectively confront China's state-led, export-driven economic policies, arguing that this has led to excess manufacturing capacity that is flooding the world with cheap goods and threatening G7 and other market economies.

But G7 members Japan, Germany, France and Italy all face a potential doubling of reciprocal U.S. duties to 20% or more in early July. Britain negotiated a limited trade deal that leaves it saddled with 10% U.S. tariffs on most goods, and host Canada is still struggling with Trump's separate 25% duty on many exports.

Champagne also said that the G7 group would discuss ways to better police low-value package shipments from China to combat smuggling. The Trump administration has ended a duty-free exemption for Chinese shipments valued under $800, which it has blamed for the trafficking of fentanyl and its precursor chemicals.

Reducing fentanyl trafficking is critical to lifting Trump's 25% duties on some Canadian and Mexican goods, as well as a 20% duty on Chinese goods.

Champagne appeared with Ukrainian Finance Minister Serhii Marchenko and pledged to continue Canada's support for Ukraine in its struggle againstRussia's invasion. He also said Canada is considering helping Ukraine build a Canadian-style pension system.

Marchenko told reporters that he would seek to reiterate Ukraine's arguments for strengthening sanctions against Russia , including through lowering the level of the G7-led $60-per-barrel price cap imposed on Russian crude oil exports.

Source: TradingView

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Balogun Opeyemi

Key Points:

● Federal Reserve takes a wait-and-see approach due to economic uncertainties.

● The cautious stance increases market volatility, impacting cryptocurrencies.

● Bitcoin and Ethereum show volatile market reactions to Fed's policies.

Loretta Mester and Mary Daly from the Federal Reserve indicated a wait-and-see approach at an Atlanta Fed Bank meeting given current economic uncertainties.

The Federal Reserve's cautious stance accentuates market volatility, especially impacting cryptocurrencies like Bitcoin. Ether and altcoins reflect similar risk-off behaviors.

Fed's Caution Sparks Cryptocurrency Market Turbulence

Federal Reserve Bank Presidents Loretta Mester and Mary Daly emphasized a cautious approach during a meeting in Atlanta, citing uncertainty in trade policy. Such vagueness limits precise monetary policy action. Monetary policy remains uncertain given the unpredictable fiscal backdrop, leading to elevated market volatility. Bitcoin and Ethereum showed caution-driven responses, with Bitcoin's price reacting sharply to recent announcements. The cryptocurrency market's reactions have demonstrated increased sensitivity, reflecting broader economic apprehensions.

Given the uncertainty surrounding the impact of the Trump administration's policies, the best course of action for the Fed now is to wait and then make any further policy decisions.

"Given the uncertainty surrounding the impact of the Trump administration's policies, the best course of action for the Fed now is to wait and then make any further policy decisions." — Loretta Mester

Historical Fluctuations: Bitcoin Reacts to Fed Policies

Did you know? In periods of Federal Reserve indecision, BTC and major altcoins display sharp market fluctuations—a trend seen during trade policy shifts and Fed reviews in 2020 and 2023.

Bitcoin's current valuation stands at $106,790.79, with a market cap of $2.12 trillion and 24-hour trading volume dropping by 38.46%, according to CoinMarketCap. Bitcoin's dominant market position of 62.95% continues to impact broader sentiment.

Bitcoin(BTC), daily chart, screenshot on CoinMarketCap at 00:22 UTC on May 21, 2025. Source: CoinMarketCap

Coincu research indicates that Federal Reserve policy ambiguity often precipitates cryptocurrency volatility. Historical patterns suggest increased market activity aligns with shifting monetary signals.

Read original article on coincu.com

Source: CryptoSlate

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Hannah Ellis

The Canadian dollar strengthened against its U.S. counterpart on Tuesday as investors slashed bets on a Bank of Canada interest rate cut next month after domestic data showed underlying inflation heating up.

The loonie was trading 0.2% higher at 1.3925 per U.S. dollar, or 71.81 U.S. cents, after moving in a range of 1.3918 to 1.3968.Canada's annual inflation rate fell to 1.7% in April due to a drop in energy prices but two core measures closely watched by the BoC moved above 3%."Ex-food and energy was probably a little bit hotter than expected," said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. "I think it would give the Bank of Canada a chance to pause even further."

The Canadian overnight index swaps market was pricing in a 33% chance of an interest rate cut at the next BoC policy decision on June 4, down from 65% before the data. The central bank left its benchmark rate on hold at 2.75% last month, the first pause since the easing campaign began last June.

The U.S. dollar (.DXY), fell against a basket of major currencies, weighed down in part by the Federal Reserve's caution over the economy, while the price of oil , one of Canada's major exports, settled 0.2% lower at $62.56 a barrel.

Canadian government bond yields rose across the curve. The 10-year was up 11.6 basis points at 3.290%, after earlier touching its highest level since January 24 at 3.319%.

Reporting by Fergal Smith in Toronto; Editing by Nia Williams

Source: Kitco

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Olivia Brooks

Political

Israel is preparing for a potential military strike on Iranian nuclear facilities, as the U.S. continues to pursue a diplomatic agreement with Tehran, CNN reported on Tuesday, citing multiple U.S. officials familiar with recent intelligence.

While Israeli leaders have not made a final decision, intercepted communications and observed military movements, including air munitions transfers and completed air drills, have heightened U.S. concerns, CNN said.

One source told CNN that the likelihood of an Israeli strike has "gone up significantly" in recent months. The person added that a US-Iran nuclear deal under President Donald Trump that doesn’t eliminate all Iranian uranium makes a strike more likely.

Any strike would represent a significant break with Trump, who has prioritized diplomacy but warned of possible military action should nuclear talks fail, the CNN report said.

Trump reportedly gave Iran’s Supreme Leader a 60-day deadline in March to reach a deal. That deadline has passed.

A strike could also inflame tensions in a region already destabilized by the war in Gaza. The CNN report stated that despite the risks, Israeli leaders appear willing to act if Washington pursues a deal they view as inadequate.

Israel lacks the capacity to destroy Iran’s nuclear program without U.S. military support, but could act alone to derail a prospective agreement, CNN reported.