European Gas Hits Highest Level Since 2023 as War Fears Stoke Inflation

European natural gas prices climbed to their highest level since 2023 on Wednesday, while oil prices reached a five-week high as renewed fighting between the United States and Iran raised concerns about prolonged inflation and higher interest rates.

Gas prices at the Dutch TTF hub rose above €75 per megawatt-hour, marking their highest level since early 2023, before easing to around €73.67. Brent crude also gained, briefly rising above $97 a barrel before settling around $95.55.

The increase in energy costs placed further pressure on global bond markets. The yield on the US 10-year Treasury climbed to 4.82 per cent, its highest level since 2023, amid concerns that central banks could face renewed pressure to raise interest rates to contain inflation.

European borrowing costs also increased. Germany's 10-year government bond yield reached about 3.4 per cent, its highest level since 2011, while UK borrowing costs rose to a level not seen since the global financial crisis.

Investors have become increasingly concerned about the potential economic impact of renewed US-Iran hostilities, particularly because the two countries are competing for influence over the Strait of Hormuz, a major route for global oil shipments.

European gas markets are also facing concerns over winter supplies. Gas storage facilities across the European Union were about 63 per cent full at the end of August, significantly below the bloc's target of 80 per cent ahead of winter.

Germany has warned that it could struggle to meet its national storage target, while Italy has already filled around 83 per cent of its capacity.

Although European officials do not currently expect a major winter supply crisis, insufficient storage could force countries to purchase more expensive gas on the spot market during colder months.

The rise in energy prices is already contributing to inflationary pressures. Eurozone inflation accelerated to 3.3 per cent in August, with energy prices rising by 14.3 per cent.

Stock markets were also affected. Japan's Nikkei 225 fell about 3 per cent, South Korea's Kospi dropped 3.8 per cent, while the Stoxx Europe 600 declined 0.2 per cent. The S&P 500 gained 0.4 per cent but remained lower for the week.

Analysts warned that continued increases in energy prices could further weigh on bonds, equities and other riskier assets if the US-Iran conflict persists.

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