US military strikes against targets in southern Iran have rattled global markets, sending oil prices sharply higher and pushing benchmark Treasury yields up as investors recalibrate their inflation expectations. The result is a familiar chain reaction: expensive oil feeds into inflation fears, inflation fears feed into higher yields, and higher yields make life harder for every risk asset on the board, crypto included.

Brent crude surged more than 3% following the strikes, which targeted missile launch sites and mine-laying vessels in southern Iran between May 26 and 28. Earlier in the conflict, Brent had peaked above $119 per barrel.

What happened and why it matters

US Central Command conducted the strikes against military infrastructure in southern Iran, hitting both missile launch locations and vessels involved in laying mines. The target area sits uncomfortably close to the Strait of Hormuz, the narrow waterway that functions as the world’s most important oil chokepoint.

At peak blockade levels during the recent conflict, roughly 20% of global oil trade has been affected. The immediate market response was predictable but still painful. Treasury prices fell, which means yields rose, as traders priced in the likelihood that elevated energy costs would keep inflation stickier than previously expected. The 10-year US Treasury yield had already climbed to around 4.7% in mid-May, driven by accumulating inflation concerns. It has since eased to approximately 4.47% to 4.5%, but the strikes threaten to reverse that modest relief.

The Fed problem

Before the latest escalation, markets had been cautiously optimistic that the Federal Reserve might begin easing interest rates later this year. Rising oil prices make it significantly harder for the Fed to justify cutting rates. A 3% jump in Brent crude in a matter of days is the opposite of cooling.

Bitcoin and Ethereum have both felt downward pressure alongside stocks as these dynamics play out. The correlation between crypto and traditional risk assets remains stubbornly intact during periods of macro stress. When Treasury yields spike and rate cut expectations get pushed back, crypto tends to sell off right alongside the Nasdaq.

What this means for crypto investors

For crypto traders specifically, the 10-year Treasury yield is the number to watch. When it was easing toward 4.47%, Bitcoin had some breathing room. If the yield pushes back toward 4.7% or beyond on renewed inflation fears, expect crypto to face renewed headwinds.

Some analysts have suggested that Bitcoin could serve as a long-term inflation hedge, similar to the narrative that has historically surrounded gold. However, when oil prices spike and inflation fears surge, Bitcoin has consistently traded like a risk asset rather than a safe haven.