Global markets entered Friday with oil prices climbing again as fears of Middle East supply disruption spread into currencies, bonds and central-bank expectations. Brent crude rose to around $108.96 a barrel in early Asian trading, according to Reuters, while the US dollar held near its strongest level of the week.

The immediate market concern is that conflict and shipping disruption could keep energy prices elevated for longer than investors previously expected. Oil above $100 changes the inflation outlook for fuel-importing economies and makes interest-rate cuts harder to justify.

Why oil is driving currencies

The dollar often benefits when investors move toward liquid safe-haven assets during geopolitical stress. It is also being supported by higher US bond yields and expectations that the Federal Reserve may need to keep policy tighter if expensive energy feeds into broader inflation.

The Japanese yen initially weakened against the dollar even though Japan reported wholesale inflation of 7.6% for August. That inflation reading strengthens the case for a Bank of Japan rate increase, but imported energy costs are also a major burden for Japan because the country depends heavily on fuel imports.

What changed in the Middle East

Markets reacted to renewed concern around shipping routes after Iran-aligned Houthi forces seized Yemen's port city of Mocha and advanced along the Red Sea coast, according to Reuters. Traders are already sensitive to disruption around the Strait of Hormuz and nearby sea lanes because a large share of global oil and gas trade moves through the region.

Even without a complete closure, higher insurance costs, rerouting and perceived risk can lift delivered energy prices.

Why central banks care

An oil shock creates an uncomfortable policy mix: slower growth and higher inflation at the same time. Central banks cannot produce more oil, but they may respond if energy costs begin to raise wages, services prices and inflation expectations.

The European Central Bank has already raised rates again amid the energy shock, while markets are reassessing the Federal Reserve and Bank of Japan paths.

What to watch next

Three indicators matter most: Brent's ability to remain above $100, actual shipping volumes through key Gulf routes, and upcoming US inflation data. If energy prices retreat quickly, some of the pressure could fade. If disruption persists, the oil shock will increasingly affect transport costs, corporate margins and household budgets worldwide.

Source: Reuters.