Oil climbed, the dollar strengthened, and stock markets across Asia, Europe, and the United States slipped after U.S. President Donald Trump warned that the month-old ceasefire with Iran was “on life support,” signaling that hopes for stability in one of the world’s most critical oil corridors may be fading fast.

With tensions escalating and traders bracing for fresh U.S. inflation data, the mood on Wall Street shifted sharply from optimism to caution.

Oil Surges as Strait of Hormuz Fears Return

Brent crude futures jumped 2% to about $106.4 a barrel as investors worried that stalled negotiations could once again threaten shipping through the Strait of Hormuz, one of the world’s most important energy chokepoints.

Trump said Tehran’s response to a U.S. proposal aimed at ending the conflict showed the two sides remained deeply divided.

The warning immediately reignited fears of long-term supply disruptions.

Deutsche Bank strategist Jim Reid said markets were increasingly pricing in the possibility that the crisis could drag on.

“Markets are also pricing rising chances of lasting disruption, with 6-month Brent futures up 2.54% to $89.50 a barrel yesterday,” he said.

The surge in oil added fresh pressure to already nervous investors who are now confronting the possibility of higher inflation, rising borrowing costs, and geopolitical instability all at once.

Global Stock Markets Slide

The selloff spread quickly through global equities.

In Europe, the STOXX 600, still only 4% below its late February record high, fell 1.2% in early trading.

U.S. futures also weakened sharply, with S&P 500 futures down 0.4% and Nasdaq futures dropping 0.7%.

MSCI’s broadest index of Asian shares excluding Japan fell 0.6%.

Even South Korea’s previously unstoppable KOSPI index stumbled. After surging toward the psychologically important 8,000-point level, the market abruptly reversed course and plunged about 3.5%, dragging down other regional indexes.

The retreat marked a sharp cooldown in the massive AI and semiconductor rally that had dominated markets in recent months.

Trump’s China Visit Under Intense Scrutiny

Investors are now closely watching Trump’s upcoming visit to China, which begins Wednesday, though expectations for major breakthroughs remain extremely low.

Markets are hoping at minimum that tensions do not worsen further on either trade or geopolitical fronts.

“Investors should not expect sweeping agreements. A ‘win’ would mean no new tariffs or export controls, and perhaps small symbolic deals, such as agricultural purchases, aircraft orders, or signals on rare earths,” said Daniel Casali, chief investment strategist at Evelyn Partners.

“These may seem minor, but stability at the margin matters.”

That fragile stability is becoming increasingly important for markets already under pressure from war fears, rising energy prices, and inflation concerns.

Inflation Report Could Trigger Another Shockwave

Attention is now turning to a critical U.S. inflation report due later Tuesday.

Economists expect the headline consumer price index to rise 3.7% year over year, up from 3.3% the previous month.

A hotter-than-expected reading could dramatically reshape expectations for Federal Reserve policy.

Before the Middle East conflict intensified, investors had widely anticipated interest rate cuts this year. Now, some traders fear the Fed may instead be forced to raise rates again if inflation accelerates.

That possibility has already begun pushing bond yields higher worldwide.

UK Bond Market Rocked After Starmer Speech

Global bond markets also faced heavy pressure following political turmoil in Britain.

A selloff in UK government bonds intensified after Prime Minister Keir Starmer delivered a speech Monday that failed to calm concerns about his political future following Labour’s crushing local election losses.

UK gilt yields spiked in early Tuesday trading.

The yield on 30-year bonds climbed 11 basis points to 5.794%, the highest level since 1998, according to LSEG data.

Sterling dropped 0.7% to $1.352, making it the weakest major currency against the dollar.

Benchmark 10-year U.S. Treasury yields also moved higher, rising 2 basis points to 4.43%.

Dollar Strengthens as Currency Markets Turn Defensive

Currency traders piled into the dollar as investors sought safety amid mounting uncertainty.

The U.S. currency gained 0.2% against the Japanese yen, reaching 157.525.

After meeting with Japanese Finance Minister Satsuki Katayama in Tokyo, U.S. Treasury Secretary Scott Bessent said on X that coordination between the two countries remained “constant and robust” in addressing excessive currency volatility.

The euro slipped 0.3% to $1.1747, while the Australian dollar fell 0.5% to $0.7214 ahead of Australia’s latest budget update, where the government is expected to announce a narrower deficit than previously projected.

As markets brace for inflation data, geopolitical risk, and the possibility of deeper economic turbulence, investors are increasingly confronting a sobering reality.

The AI boom that fueled record-breaking gains may no longer be strong enough to shield global markets from a rapidly escalating crisis.