AFS Markets Blog: Morning 08/07/2026

• Meanwhile in markets, tit-for-tat strikes are back on the menu as the US and Iran once again exchange fire across the Gulf. Crude oil prices have been propelled to a two-week high, driving bond yields upward in tandem;

• US forces targeted 80 sites in Iran, with strikes hitting everything from air defense systems to IRGC small boats. Crucially, the rhetoric has shifted too: US Central Command officially labeled the action a “new round of offensive strikes” – a sharp escalation from previous retaliatory operations which were framed as defensive;

• Tehran hasn’t let the latest round of US strikes go unanswered, announcing retaliatory strikes against US military sites in Bahrain and Kuwait. In a classic case of ‘mine is bigger than yours’ the IRGC claims to have targeted 85 American installations – topping the 80 sites hit by Washington hours earlier;

• The renewed fighting follows yesterday’s attacks on three vessels in the Strait of Hormuz by Iran. The strikes targeted ships in a channel opened along the Omani coast – a corridor established without Tehran's consent. Iran claims this violates the memorandum of understanding as it supposedly grants it sole control over the waterway. Headlines this morning report that Iran is now signaling that the only safe route through Hormuz is via its own designated paths. The escalation mirrors a similar wave of strikes from two weeks ago. That flare-up concluded with a temporary one-week ceasefire – during which time the disagreement over control of the Strait was unable to be solved;

• Washington's response has not been limited to shooting. It has rescinded the sanctions waiver that allowed Iran to sell crude oil abroad – leaving tens of millions of Iranian barrels already in transit stranded at sea. At pixel time, Brent crude is trading at $76.63 a barrel – its highest level since the 24th of June;

• The escalation hits a market where global emergency reserve stockpiles have already been used to offset the Middle Eastern crude tap being turned down to a trickle. The US Strategic Petroleum Reserve – which started to be drawn down in April – has now plunged to its lowest level since 1983. Total US crude oil inventories – including commercial stocks – have fallen by 120 million barrels since the start of the war in Iran to 734 million – their lowest level since 1984;

• Shifting to broader market commentary, the AI trade continues to tumble with the KOSPI index falling five percent today – into bear market territory. S&P 500 futures are down a more measured quarter of a percent today. US Treasury yields remain near yesterday’s highs – with the 10-year yield rising back above the 4.50 handle. Meanwhile, the broad dollar remains little moved on the renewed escalation in the Middle East;

• Looking ahead, we have some ECB-speak on tap today, along with the second day of the NATO summit in Ankara and the release of the June FOMC meeting minutes. Besides that, the National Bank of Poland has its interest rate decision at which it is expected to hold rates steady.

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