Oil prices shot up on Monday after United States president Donald Trump turned down an Iranian peace offer, sending fresh worries through global markets about rising costs.

Tehran proposed a seven-day ceasefire at the UN General Assembly last week. The plan included reopening the Strait of Hormuz, a critical waterway for the world’s energy supply that has been at the centre of US-Iran tensions.

The strait’s closure has choked oil supplies worldwide, pushing prices to painful levels for consumers and businesses alike. The situation has grown worse with Houthi forces now controlling Yemen’s entire Red Sea coast, including the Bab al-Mandab Strait, another vital shipping route.

Trump dismisses Iranian proposal

Speaking to reporters outside the White House, Trump was blunt. “I reject their proposal,” he said.

But the president hinted that talks might continue. In an interview with Axios published on Sunday, he said Iran wants to strike a deal, but not the one he’s willing to accept.

“It is what we would have maybe agreed to a year ago,” Trump told the news platform. “They overplayed their hand.”

Axios reported that indirect negotiations between Washington and Tehran could happen as soon as Monday, citing sources close to the matter.

Iran hasn’t budged on its demands. The country wants frozen assets released, sanctions on its oil lifted, and the US naval blockade ended before it will reopen the strait.

Markets react to uncertainty

Oil prices, which dropped more than 2% on Friday when news of Iran’s offer broke, bounced back sharply. Brent crude surged over 3% to climb back above $107 a barrel.

The price jump stirred up inflation fears again, putting pressure on stock markets across Asia. Seoul tumbled 2,7% as trading resumed after a long break. Tokyo, Shanghai, Manila, Mumbai, Bangkok and Jakarta all saw losses.

Hong Kong, Sydney, Singapore and Wellington bucked the trend with gains. European markets in London, Paris and Frankfurt opened higher.

Bond yields climbed too. A gauge tracking global bonds topped 4% last week for the first time since 2007, according to Bloomberg.

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Fed rate decision looms

The rising oil prices put the spotlight back on the Federal Reserve ahead of its next policy meeting at the end of October. Traders are now betting there’s more than a 65% chance the Fed will raise interest rates for the second time in a row, based on CME’s FedWatch tool.

Before that decision, investors will get crucial data this week. The Fed’s preferred measure of inflation and a key jobs report could both shape what policymakers decide to do next.

Stephen Innes at Quintex Intel said Middle East tensions have flared up again after Trump’s rejection. “Oil has pushed higher, Asian equities are softer, and suddenly the brief Friday reprieve in global fixed income looks more like an intermission than the end of the show,” he wrote.

Still, Innes said markets are pricing in some chance that both sides will eventually return to negotiations. “Even if they continue to spend the next few weeks shouting across it first,” he added.

South African motorists to feel the pain

The oil price surge will hit South African drivers hard. Central Energy Fund data shows petrol could jump by up to R2,83 per litre when new prices take effect on 7 October.

That would push 95 octane to around R29,75 per litre inland, up from the current R26,92. Diesel users face an even steeper climb, with the wholesale price of 50ppm diesel expected to rise by R3,01 per litre to about R33,06.

The Department of Mineral and Petroleum Resources will announce the official increases on 5 October.

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