Brent crude prices climbed on Wednesday as renewed friction between the United States and Iran cast a shadow over global energy supply routes.
The spike in oil costs is reigniting concerns about inflationary pressure in Europe, complicating the monetary policy outlook for the European Central Bank (ECB).
Investors had largely priced in a decision to keep interest rates unchanged at the ECB's upcoming meeting.
However, the fresh geopolitical volatility is shifting sentiment, with traders now weighing the possibility of a rate hike to counteract the secondary inflation effects of higher energy prices.
This marks a significant pivot from the dovish consensus that had dominated the market narrative in recent weeks.
The uncertainty surrounding the Strait of Hormuz remains a key driver of market anxiety.
As shipping risks persist, the potential for supply disruptions continues to weigh on investor confidence across European equities and bond markets.
US Treasury yields remained elevated as markets navigated the quiet domestic macro calendar, overshadowed by the persistent geopolitical risks in the Middle East.