Oil prices rose on Monday during a highly volatile trading session following U.S. alignment with Israel in striking Iran's nuclear facilities over the weekend. Investors are evaluating potential risks to global oil supply as conflict escalates.

Brent crude futures climbed 78 cents or 1.01% to $77.79 a barrel by 10:00 GMT. U.S. West Texas Intermediate (WTI) rose 76 cents or 1.03% to $74.60 a barrel.

Major Escalation: Trump Claims Destruction of Nuclear Facilities

President Donald Trump stated he had "destroyed" Iran’s key nuclear facilities in the weekend strikes — a major escalation in the Middle East conflict. Iran vowed to defend itself.

Israel launched fresh strikes on Monday targeting Tehran and the Fordow nuclear facility, which was also hit by the U.S.

Iran Warns, China Blames U.S. for Undermining Credibility

Iran, OPEC’s third-largest oil producer, said the U.S. strikes expanded the range of "legitimate targets" for its armed forces. It called Trump a "gambler" for joining Israel’s military campaign.

Meanwhile, China criticized the U.S. action as severely damaging Washington’s credibility, warning that the situation could spiral "out of control."

Volatility Surges as Oil Hits Five-Month Highs, Then Retreats

Monday's session was highly volatile: Brent and WTI reached five-month highs of $81.40 and $78.40 respectively before retreating and turning negative in early European trading, only to rise again by about 1%.

Since the conflict erupted on June 13, prices have climbed on fears that Iran could retaliate by closing the Strait of Hormuz, through which nearly 20% of global oil supply passes.

Risk Premium Persists Despite No Supply Disruptions Yet

Despite no immediate supply disruptions, markets are still pricing in a geopolitical risk premium.

Giovanni Staunovo of UBS said, "The geopolitical risk premium has started to fade given the absence of supply disruption. But as long as the conflict’s outcome remains uncertain, market participants will continue to price in the risks. Prices are likely to remain volatile in the near term."

All Eyes on Strait of Hormuz — Even Threats Can Move Prices

Ole Hansen of Saxo Bank stated, "All eyes remain on the Strait of Hormuz and whether Iran will attempt to disrupt tanker traffic." He added, "Prices could spike even without actual disruption if threats are sufficient to delay shipments."

Goldman Sachs projected in a Sunday report that Brent could temporarily hit $110 per barrel if half of the Strait’s traffic were disrupted for one month, with supply remaining 10% lower for the following 11 months.

However, Goldman’s base case assumes no major disruption due to global efforts to avoid a severe supply crisis.

Iran Could Pay an Economic Price for Closing the Strait

Sughanda Sachdeva of SS WealthStreet noted that the Strait is vital for Iran’s oil exports—a key revenue source. A prolonged closure could cause significant economic harm to Iran, making it a “double-edged sword.”

U.S. Secretary of State Marco Rubio urged China to dissuade Iran from closing the Strait, stating, "China relies heavily on the Strait of Hormuz for oil imports."

China is Iran’s top oil customer and maintains friendly relations with Tehran.

Iran Hints at Military Option, Decision Rests with National Security Council

Iran’s Foreign Minister said Sunday that the country “reserves all options to defend its sovereignty,” after the U.S. bombed three nuclear sites.

Iranian state media reported that Parliament endorsed a proposal to close the Strait, though the final decision lies with the Supreme National Security Council.

Global Economic Fallout Could Be Severe

Closing the narrow Strait between Iran and Oman could trigger catastrophic consequences for the global economy. According to the U.S. Energy Information Administration, around 20 million barrels per day passed through the Strait in 2024—about 20% of global consumption.

Goldman Sachs and Rapidan Energy both project oil prices could exceed $100 per barrel if the Strait is closed for a long duration. However, J.P. Morgan believes the likelihood is low, viewing such an action as an act of war from the U.S. perspective.

Rubio called the idea of closing the Strait “economic suicide” for Iran, given its dependence on that route for oil exports.

Iran’s Oil Exports at Risk — China Would Be Hardest Hit

Iran is the third-largest OPEC producer, pumping 3.3 million bpd. It exported 1.84 million bpd last month, mostly to China, according to Kpler data.

Matt Smith, lead oil analyst at Kpler, told CNBC, “It would be self-inflicted damage — closing the Strait would halt oil exports to China, cutting off a major income stream.”

U.S. Fifth Fleet on Alert, Response Likely to Be Broad

Secretary Rubio confirmed the U.S. retains multiple options to respond to any Iranian move to close the Strait.

"The impact will hurt other economies more than ours. It would be a massive escalation that demands a response — not just from us, but from other powers too," he said.

The U.S. Fifth Fleet, based in Bahrain, is tasked with protecting commercial navigation in the Gulf. Many oil traders believe the Navy could quickly counter any Iranian attempt to block the Strait.

However, Bob McNally, founder of Rapidan Energy and a former energy advisor to President George W. Bush, warned the market may be underestimating the risk.

“We believe Iran could disrupt shipping in the Strait far longer than markets expect — weeks or even months, not just hours or days,” McNally said.

The U.S. dollar rose on Monday as worried investors sought safe-haven assets, although limited moves suggest markets are still awaiting Iran's response to U.S. strikes on its nuclear sites, which have heightened Middle East tensions.

Tehran: U.S. strikes expand list of legitimate targets

Iran said Monday that the American strikes on its nuclear sites had expanded the list of legitimate military targets. It also described President Donald Trump as a "gambler" for joining Israel's military campaign against the Islamic Republic.

Big Moves in Oil Markets

Oil markets saw the most significant movement, with crude prices hitting five-month highs before retreating later in the day. The dollar rose 1% against the Japanese yen to 147.450, its highest since May 15.

Oil Prices and the Dollar-Yen Relationship

Bank of America analysts noted that the USD/JPY pair may reprice upward if oil prices remain high. They pointed out that Japan imports nearly all of its oil—over 90% of it from the Middle East—while the U.S. is relatively energy self-sufficient.

Euro, Pound, and Other Currencies

The euro performed slightly better, dropping just 0.2% to $1.14965, and remained flat after preliminary eurozone PMI data showed the region's economy stalled for a second consecutive month in June.

Positive UK data had little effect on the British pound, which stood at $1.34385, down 0.1%. Meanwhile, the risk-sensitive Australian dollar hit a one-month low, falling 0.52% to $0.64180. The New Zealand dollar dropped 0.68% to $0.5926.

U.S. Dollar Index Rises Amid Market Uncertainty

The U.S. Dollar Index, which tracks the greenback against six major currencies, rose 0.15% to 99.065.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the market is in "wait-and-see" mode regarding Iran's response. She noted that the greater concern is the inflationary impact of the conflict rather than its economic toll.

"Currency markets are hostage to the statements and actions of Iran, Israel, and the U.S. The risks clearly lean toward safe-haven currencies if the conflict escalates," she said.

Iran Threatens to Close Strait of Hormuz

Iran vowed to defend itself after the U.S. dropped 30,000-pound bunker-busting bombs on the mountain above its Fordow nuclear facility. U.S. leaders urged Tehran to stand down as anti-war protests erupted in some U.S. cities.

In a powerful threat to the West, Iran's parliament approved a motion to close the Strait of Hormuz, through which roughly a quarter of global oil shipments pass. The strait lies between Iran, Oman, and the UAE.

Dollar Regains Safe-Haven Role Despite Yearly Decline

While the dollar has regained its role as a safe haven amid geopolitical risk, the relatively limited movement suggests cautious investor behavior.

The dollar has declined 8.6% this year against major currencies due to economic uncertainty sparked by Trump’s trade policies and concerns over U.S. growth, pushing investors toward alternatives.

Markets Await Powell’s Testimony

Attention is also turning to Fed Chair Jerome Powell's semiannual testimony to Congress.

George Vessey, chief currency strategist at Convera, said, "Amid sharp political division, Powell is expected to stress the Fed’s independence and reiterate that any rate decisions will be entirely data-dependent."

Bond Market Tells a Different Safe-Haven Story

Despite escalating geopolitical tensions, the U.S. bond market—a key safe-haven indicator—has shown an unusually muted response.

Typically, global crises push investors toward U.S. sovereign debt, but Danske Bank’s Kundby Nielsen believes the bond reaction is unclear due to trade deficits, tariffs, and the likelihood of increased bond supply from expansionary fiscal policy.

Global Trade War Adds to Financial Risk

Financial risk is also rising amid the global trade war. With the July 9 deadline marking the end of the temporary tariff exemption, the U.S. is threatening to impose tariffs of up to 50% on most imports from the European Union.

Without the War, the Dollar Would Have Continued Falling

Thierry Wizman and Gareth Berry, strategists at Macquarie Bank, wrote in a June 20 client note—prior to the U.S. strikes on Iran—that the dollar would likely have declined further without the conflict.

They cited unfavorable U.S. tariff news and relatively resilient data outside the U.S. as reasons for anticipated weakness.

Heavy Bets Against the Dollar

Bank of America strategists also noted that investors are heavily positioned for a weaker dollar, adding momentum to any downside moves.

According to the bank’s June 16 survey of global fund managers, short dollar positions were the third most crowded trade—though the poll was conducted before the U.S. intervention in the Middle East conflict.

• Escalating Geopolitical Tensions in the Middle East
• Markets Await Key Sector Data from Europe

The euro declined in the European market on Monday at the start of the week’s trading against a basket of global currencies, resuming losses that had paused for two days against the U.S. dollar. This is due to investors’ risk aversion and focus on the dollar as the best alternative investment.

This comes amid rising geopolitical tensions in the Middle East, especially after the United States carried out military strikes on Iran’s nuclear sites, with markets awaiting Iran’s response to these attacks.

Expectations of a European Central Bank interest rate cut in July have declined, pending further evidence on the path of monetary policy easing in Europe during the second half of the year.

Price Overview

• EUR/USD today: The euro dropped by 0.6% to $1.1452, down from Friday’s closing price of $1.1521, with a session high of $1.1507.
• The euro closed Friday up 0.25% against the dollar, marking the second straight daily gain, continuing its rebound from a one-week low of $1.1446.
• Last week, the euro lost about 0.3% against the dollar, its first weekly loss in the past three weeks, due to profit-taking and corrections from a four-year high of $1.1631.

U.S. Dollar

The U.S. Dollar Index jumped 0.4% on Monday, hitting a two-week high of 99.16 points, reflecting strength against a basket of major and minor currencies.

The rise comes as investors turn to the dollar as the best alternative investment, while markets await Iran’s response to U.S. airstrikes on its nuclear sites, which have intensified geopolitical tensions in the Middle East.

U.S. Strikes on Iran

Over the weekend, the U.S. conducted air and missile strikes targeting three key Iranian nuclear facilities (Fordow, Natanz, and Isfahan), involving more than 125 U.S. military aircraft, including 7 B-2 Spirit stealth bombers.

The stealth bombers dropped 30,000-pound bunker-busting bombs on Fordow — Iran’s most fortified site, buried 80–90 meters beneath the Zagros Mountains. U.S. submarines also launched 30 Tomahawk missiles at Natanz and Isfahan.

The U.S. strikes followed Israeli attacks that began on June 13 targeting nuclear and military sites in Iran, which triggered Iranian missile and drone retaliations against Israel.

President Trump said the strikes aimed to weaken Tehran’s nuclear program. In a Truth Social speech, he urged Iran to "make peace" and warned of further strikes if U.S. bases or interests in the Middle East are targeted.

Satellite images showed six large craters at the Fordow site with scattered concrete debris, indicating severe damage — though the site was not completely destroyed.

At Natanz, Iran’s largest uranium enrichment facility — already damaged by Israeli strikes on June 13 — the U.S. targeted underground enrichment halls, with two new craters seen in satellite images.

In Isfahan, which contains a uranium conversion facility, Tomahawk missiles struck above-ground buildings, with reports indicating six additional buildings were destroyed.

Iran condemned the U.S. strikes as a “brutal violation of international law” and vowed “severe” retaliation through Foreign Minister Abbas Araghchi. The Iranian parliament approved closing the Strait of Hormuz. Meanwhile, the IRGC launched ballistic missiles at Israel, hitting Tel Aviv and Haifa.

European Interest Rates

• European Central Bank President Christine Lagarde stated: “With the recent cut and the current level of rates... I believe we are approaching the end of the monetary easing cycle.”
• According to Reuters sources, a clear majority in the last ECB meeting favored keeping interest rates unchanged in July, with some calling for a longer pause.
• Money markets reduced their expectations for ECB rate cuts, pricing in a 25 basis point cut by year-end, down from 30 basis points before the last meeting.
• Current market pricing for a 25 basis point ECB rate cut in July stands below 30%.

Key Sectors

To reassess those expectations, investors are awaiting the release of key sector data in Europe today, including preliminary readings for manufacturing and services PMI for June.

These figures provide vital clues about the economic performance pace in Europe during Q2. Weak data would reflect a slowdown in the eurozone economy and increase the likelihood of further ECB rate cuts.