Brent oil passes $100 on Mideast flare-up, stoking inflation fears

International oil benchmark Brent spiked above $100 a barrel Wednesday for the first time since late July following renewed US-Iran hostilities in the Middle East, stoking fears of widespread price rises and interest rate hikes. 

The jump in crude prices -- with Brent up more than three percent to as high as $101.55 a barrel -- dragged down stock markets, with investors worrying that major central banks will raise rates in a bid to keep a lid on inflation.

On Wall Street, the Dow was down 0.8 percent in late morning trading.

Across the Atlantic, Europe's markets fell with Paris ending the day down nearly two percent as European natural gas prices rose sharply to their highest level since early 2023, topping 80 euros per megawatt-hour, as nations strive to replenish stocks ahead of winter.

The $100-a-barrel mark for crude oil "is a psychological level that matters for markets" and raises "costs for businesses and consumers and ultimately could weigh on economic growth", argued Kathleen Brooks, research director at the XTB trading group.

The main US oil contract, West Texas Intermediate, climbed to over $96 a barrel, with Patrick O'Hare, chief market analyst at Briefing.com, blaming "nettlesome retaliatory strikes between the US and Iran doing the damage".

Average diesel prices in the United States reached a record $5.94 a gallon, heaping domestic pressure on President Donald Trump ahead of November's midterm elections.

All eyes are on US inflation data due Friday that could cement expectations that the Federal Reserve will raise borrowing costs next week.

"If inflation data turns out to be in line, or worse, higher than expected, then this is likely to put renewed pressure on risk assets as it would cement expectations of a hike from the FOMC’s September 16 meeting," said Forex.com analyst Fawad Razaqzada, referring to the Fed's rate-setting committee.

Before then, the European Central Bank is widely forecast to hike eurozone interest rates on Thursday.

"The bump in oil prices naturally translates to a bump in concerns about inflation and a possible rate hike by the Fed when it meets next week," O'Hare said.

Those inflation concerns have been driving yields on government debt higher as investors demand greater returns.

The yield on 10-year US Treasury bond jumped Wednesday to its highest level since 2023.

Besides the war, investors are also concerned about the escalating "tariff wrestling match" between the US and Canada, with Trump banning imports of alcohol from Washington's northern neighbour on Tuesday.

Iran on Wednesday launched fresh attacks against US targets in the Middle East in retaliation for American strikes on Iranian oil tankers, dragging the foes deeper into war.

Tehran's powerful Revolutionary Guards said they attacked 20 US vessels trying to pass through the strategic Strait of Hormuz, largely controlled by Iran since the war erupted.

Iran also insisted a new "prohibited zone" outside Hormuz would cover waters many miles beyond the key waterway and apply to ships as far away as the Arabian Sea.

Away from the war, focus later will fall firmly on Apple, which is set to unveil a slew of new and updated devices, including a long-rumoured foldable iPhone to compete with Samsung's models.

It will also mark the company's first major event under chief executive John Ternus, an Apple veteran who replaced Tim Cook on September 1.

Apple's shares were down 1.2 percent in New York.

Brent North Sea Crude: UP 3.5 percent at $101.37 per barrel

West Texas Intermediate: UP 3.8 percent at $96.56 per barrel

New York - Dow: DOWN 0.8 percent at 52,386.73 points

New York - S&P: DOWN 0.6 percent at 7,631.33

New York - Nasdaq: DOWN 0.8 percent at 26,207.63

London - FTSE 100: DOWN 1.3 percent at 10,670.06 (close)

Paris - CAC 40: DOWN 1.9 percent at 8,156.67 (close)

Frankfurt - DAX: DOWN 1.7 percent at 25,576.45 (close)

Tokyo - Nikkei 225: DOWN percent at 65,142.78 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 25,274.96 (close)

Shanghai - Composite: UP 0.3 percent at 3,951.51 (close)

Dollar/yen: DOWN at 153.59 yen from 153.96 yen on Tuesday

Euro/dollar: UP at $1.1626 from $1.1627

Pound/dollar: UP at $1.3544 from $1.3541

Euro/pound: DOWN at 85.83 pence from 85.85 pence