From crude to dollar to gold: How West Asian crisis is impacting commodities markets

From rising insurance costs on shipping to a surge in crude oil, LNG and base metals prices, and a shift to safe-haven gold, tensions in West Asia have raised concerns over a spike in global inflation. Equities are at the receiving end as the risk-off trade intensifies. Here's how this war in impacting global commodity prices:

Crude Oil and energy: The conflict in West Asia has heavily impacted the Crude oil prices with prices rising sharply following fears of production disruptions in the Middle East. The potential for a closure of the Strait of Hormuz is causing a scramble to reroute shipments, with chartering rates for tankers skyrocketing.

To note, Oil prices surged around 26 per cent on Monday to their highest since mid-2022, with Brent on track ‌ for a record one-day gain, while gold fell 2 per cent as an escalating Iran war squeezed world energy supplies, boosted the dollar and dampened hopes of interest-rate cuts.

Natural Gas: Qatar has temporarily suspended the export of liquefied natural gas (LNG) and the move has caused a massive spike in European gas futures, particularly in the TTF gas market. Qatar is the world's second largest exporter of LNG and a report from Reuters suggests a 50 per cent surge in the LNG prices on a year-on-year basis.

Industrial Metals: Industrial metals also suffered a blow as risk-aversive sentiments prevail. Aluminum prices have risen on supply concerns, with Qatari producers declaring force majeure on shipments. Aluminum rose to the highest in almost four years as escalating hostilities in West Asia worsened the supply outlook. Nickel, Zinc and lead rose 2-3 per cent each on LME.

Agri Commodities: Rising oil prices have driven up costs for biofuel production, directly impacting prices for palm oil, soybean oil, and grains. Agriculture markets, led by edible oils, rose as they took their cue from oil prices due to the extensive use ​of vegetable oils in making biofuels.

A report from Reuters suggests that Malaysian palm oil rose 9 per cent and Chicago soybean oil climbed to its highest since late 2022 in agricultural markets, buoyed by ​the crude oil rally. Wheat ​rose to its highest ⁠since June 2024 and corn prices hit a 10-month high.

Gold and safe havens: Amid the rising inflation fears and a firm US dollar, precious metals including gold and silver have experienced sharp, yet volatile, movements. Gold fell 2 per cent as an escalating Iran war squeezed world energy supplies, boosted the dollar and dampened hopes of interest-rate cuts. Higher energy costs fuelled inflation concerns and ​dimmed its prospects.

US Dollar: The US dollar jumped as the soaring oil prices sent investors scrambling ​for cash on worries that a protracted Middle East war could severely disrupt energy supplies and hurt global growth. The Indian rupee fell to an all-time low of 92.33 on Monday even as the central bank intervened before the open ​and again after trading began, underscoring the intense pressure from a surge ‌in oil prices.

Shipping and Logistics: The threat to maritime routes has increased war-risk insurance premiums and caused significant delays, as vessels are forced to avoid the Persian Gulf. The disruption in West Asia and closure of the Strait of Hormuz has forced tankers to take longer routes, increasing logistics costs, which could lead to inflation for food and fuel worldwide The rising threat amid the war is also adding to the insurance cost for the shipping vessels.

Market sentiment this week is likely to remain driven by a mix of macroeconomic developments, geopolitical tensions, and regulatory uncertainty. The US Dollar Index has already gapped higher, with markets watching whether the index can move beyond the 99.631 level and potentially test 100.321, said Justin Khoo, Senior Market Analyst - APAC at VT Market.

"In commodities, gold appears to be consolidating, but if prices break 4996.04, markets should monitor price action closely, while a move below 4842 could bring additional selling pressure," he said.

Iran has cut crude oil supply by blocking Strait of Hormuz in past weekend which has added a tension in the regional output, said Aamir Makda Commodity & Currency Analyst, Choice Broking. "Countries like Iraq, Kuwait and Qatar have reported decline in overall production," he said.