The United States military’s Central Command launched dozens of strikes across the Middle East on Monday, asserting its control over the vital Strait of Hormuz. These attacks, which included air defense systems, radar sites, missile and drone equipment, and small boats, came after a weekend of escalating hostilities across the wider region. Iran’s Revolutionary Guard immediately rejected the U.S. account, stating, “The Strait of Hormuz is our territory, and we will not allow a rogue and child-killing army from the other side of the world to continue its illegal interference in it.”
The U.S. military and President Donald Trump maintained the strait remained open, while Iran described it as closed. The waterway, historically a passage for a fifth of the world’s traded crude oil and natural gas, has seen shipping disrupted since the start of the war. Iran has maintained a chokehold on the route by attacking commercial vessels and intimidating shippers, according to the U.S. military. Around 20 vessels had been escorted through the strait in the previous 24 hours, though ship tracking sites showed little traffic.
U.S. Military Intervention
The attacks intensified after Iran struck a container ship Sunday in the strait off the coast of Oman. The U.S. military’s Central Command explicitly stated, “The Strait of Hormuz is a vital maritime corridor for global trade,” and added, “Iran does not control it.” This direct challenge to Iranian sovereignty over a waterway it considers its own territory underscores the ongoing military confrontation. The United Nations Secretary-General António Guterres issued a stark warning, noting, “A return to full-scale hostilities would have catastrophic consequences.”
Efforts to shore up a ceasefire continued Sunday, according to a regional official involved in mediation who spoke on condition of anonymity. Pakistan’s foreign minister spoke by phone with Iran’s top diplomat, urging “de-escalation” on both sides. However, an interim deal, intended to set up talks for a permanent end to the war within a 60-day period, had instead reached its midway point having devolved into a series of attacks over the strait and its future.
Regional Instability
Missile alert sirens sounded three times Monday in Bahrain, home to the U.S. Navy’s 5th Fleet. Kuwait also reported intercepting hostile fire, though there was no immediate word on damage in either country. Jordan’s military stated it shot down four Iranian missiles, an incident that “resulted in zero casualties or material damage.” Iran’s authorities reported attacks in Hormozgan, Khuzestan, and Markazi provinces, with at least two people killed, according to state-run IRNA news agency. Semiofficial Iranian media also reported strikes on Sistan and Baluchestan province. Iranian attacks on Sunday stretched across Bahrain, Kuwait, Qatar, Jordan, and Oman, whose territorial waters with Iran make up the strait. Oman, a long-standing interlocutor between Tehran and the West, summoned an Iranian diplomat to criticize the attack.
Meanwhile, a base belonging to the armed wing of the Kurdistan Freedom Party, an Iranian Kurdish opposition group based in Iraq’s semiautonomous northern Kurdistan region, came under drone attack on Monday. Rebaz Sharifi, commander of the Kurdistan Militia Corps, confirmed the strikes targeted the group’s Chamshar base, without providing details on casualties or damage. No group immediately claimed responsibility for this attack.
Economic Repercussions
Global financial markets reacted swiftly to the renewed hostilities. The dollar rose against most peers as inflation fears resurfaced, raising prospects for interest rate hikes among global central banks. Against Japan’s currency, the dollar was up 0.2% at 162.075 yen. The euro weakened 0.1% to $1.1397, the British pound slipped 0.2% to $1.3374, the Australian dollar was down 0.3% at $0.6928, and the kiwi eased 0.1% to $0.5757. The U.S. dollar index was up 0.1% at 101.13 after earlier touching its highest level since July 8.
Brent crude futures rose 4.1% to $79.11 a barrel in Asian trade, with another Reuters report indicating Brent climbed 4.3% to $79.31 a barrel. U.S. crude added 4.4% to $74.62 a barrel. This spike in oil prices pushed 2-year Treasury yields to their highest since early 2025 at 4.2393%. Fed fund futures slipped 2 ticks, implying 39 basis points of policy tightening by the end of the year. Fed funds futures were also pricing an implied 50.9% probability of two or more rate hikes by the time of the U.S. central bank’s December meeting, up from a 47.6% chance on Friday, according to the CME Group’s FedWatch tool.
Tony Sycamore, a market analyst at IG in Sydney, noted, “After the flare-up into the end of last week which continued over the weekend, the dollar has responded, and the crude oil price has been the driver.” He added, “This reinflames concerns that if the energy prices rise from here, we could start to see rate hikes pulled forward.” Thomas Mathews, head of markets for Asia Pacific at Capital Economics in Wellington, observed, “The dollar was obviously the big winner from the war last time. But it’s starting from a pretty different point this time, having strengthened quite a lot and there already having been a fairly lasting repricing of the Fed outlook.” Mathews concluded, “It’s not clear to me the greenback would gain as much this time if the situation continued to worsen, which I think is probably reflected in trade so far.”
Asian equities fell, with S&P 500 futures dipping 0.6% and Nasdaq futures losing 1.3%. EUROSTOXX 50 futures fell 0.9%, DAX futures declined 1.0%, and FTSE futures eased 0.3%. Japan’s Nikkei shed 2.2%, MSCI’s broadest index of Asia-Pacific shares outside Japan sank 1.8%, and South Korea’s KOSPI sank 7.6% after already losing almost 8% last week. South Korean chipmaker SK Hynix’s U.S.-listed shares jumped almost 14% in their Nasdaq debut on Friday, while Apple had sued OpenAI and two former employees for trade secrets theft after markets closed.
For India, the rupee and government bonds were expected to track Middle East developments alongside inflation data from the U.S. and India. The rupee closed at 95.3250 per dollar on Friday, down 0.1% on the week, and traders said it remained vulnerable to further weakening if the conflict persisted and oil prices rose. In the near term, three traders pegged the rupee in the 95-96 range. Government bonds swung sharply last week as continued purchases by foreign investors were challenged by heavy selling, tracking a fresh jump in oil prices and Treasury yields after the end of a ceasefire between the U.S. and Iran. The 10-year benchmark yield ended at 6.7139% on Friday, recovering from the week’s high of 6.7734%. Traders expected the benchmark yield to move within the 6.65%-6.77% range this week.
Economists polled by Reuters expected India’s June retail inflation, due today, to breach the central bank’s medium-term target of 4% for the first time in 16 months. Year-on-year core U.S. CPI was forecast at 2.9%, with U.S. June consumer price and core inflation due tomorrow. MUFG noted, “Unless US inflation slows materially enough to shift Fed expectations, any Asia FX rally may still prove short-lived. Conversely, another upside inflation surprise would likely reinforce the market’s bullish USD bias and keep pressure on most regional currencies.” Traders were also paring expectations that the RBI would hike rates significantly this year. Lavanya Venkateswaran, executive director and senior ASEAN and India economist at OCBC Bank, stated, “We are looking for a shallow rate hiking cycle from the RBI of a cumulative 50 bps in FY27, but these hikes will likely come in late 2026 and early 2027.”