Aluminum prices climbed on Thursday to their highest levels in nearly four years as concerns intensified over potential supply constraints to Europe and other regions due to shipping disruptions through the Strait of Hormuz amid the Middle East conflict.

The three-month aluminum contract on the London Metal Exchange rose 0.6% to $3,478.50 per metric ton after touching $3,546.5, its highest level since around March 2022.

Shipments from aluminum producers in the region—who account for roughly 9% of global supply—have been affected, raising fears that raw materials such as alumina could also face disruptions as they pass through the strait to reach these producers.

In an effort to ease some immediate concerns, Norsk Hydro announced that the Qatalum aluminum smelter in Qatar would end the curtailment that began last week and continue operating at about 60% of its production capacity despite reduced gas supplies. The company added that it is working to mitigate the effects of the curtailment and shipping disruptions.

Rising oil prices are another major concern for aluminum producers, as energy can account for 40% to 45% of aluminum smelting costs in some regions. The International Energy Agency confirmed that the Middle East war is causing the largest disruption to oil supplies in history.

Alastair Munro, senior base metals strategist at Marex, said current volatility in aluminum prices is being amplified by a short-gamma market structure in options trading, where market makers sell when prices fall and buy when they rise, increasing intraday swings.

Among other metals on the London Metal Exchange, copper slipped 0.1% to $13,032 per ton, zinc was steady at $3,310.50, lead rose 0.4% to $1,943.50, tin gained 0.8% to $49,320, and nickel edged up 0.1% to $17,710.

Bitcoin fell below the $70,000 level on Thursday but remained relatively supported as investors turned cautious following another surge in oil prices amid the escalating conflict in the Middle East.

The world’s largest cryptocurrency declined 0.7% to trade around $69,454 as of 02:14 a.m. New York time, with Bitcoin appearing to move within a narrow range around the $70,000 level while markets assess geopolitical developments.

Oil approaches $100 again, raising inflation concerns

Oil markets have been the main driver of risk appetite across financial markets. Brent crude climbed back above $100 per barrel after retreating from a peak near $120 reached on Monday, its highest level in about two years.

The latest escalation in the Middle East followed reports of attacks on two fuel tankers in Iraqi territorial waters, along with strikes targeting commercial vessels passing through the Strait of Hormuz, one of the world’s most important oil shipping routes.

About one-fifth of global oil supplies pass through the strait, while tanker traffic there has dropped significantly due to security concerns.

Rising energy prices have revived fears of global inflation at a time when central banks were preparing to consider easing monetary policy. Analysts believe that if oil prices remain above $100 for an extended period, it could complicate the Federal Reserve’s path toward rate cuts and put pressure on risk-sensitive assets such as cryptocurrencies.

In recent months, Bitcoin has often moved in tandem with risk assets, as traders worry that a new inflation shock could reduce liquidity across financial markets.

Investors are also awaiting important US economic data that could provide signals about the future path of monetary policy, including weekly jobless claims due later on Thursday and the Personal Consumption Expenditures (PCE) price index — the Federal Reserve’s preferred inflation gauge — scheduled for release on Friday.

Limited moves in other cryptocurrencies

In the broader crypto market, most alternative coins moved only slightly amid the risk-off environment.

Ethereum, the world’s second-largest cryptocurrency, rose 0.2% to $2,027.84, while Ripple, the third-largest digital currency, fell about 1% to $1.37.

Oil prices surged sharply on Thursday as Iran escalated attacks on oil and transport infrastructure in the Middle East, raising fears of a prolonged conflict and potential disruptions to oil flows through the Strait of Hormuz.

Brent crude futures jumped $6.41, or about 7%, to $98.45 per barrel by 12:35 GMT after briefly touching the $100 level earlier in the session. US West Texas Intermediate crude also climbed $5.98, or 6.85%, to $93.23 per barrel.

The gains extended after US Energy Secretary Chris Wright told CNBC that the US Navy cannot currently escort ships through the Strait of Hormuz, though he said such a move could become “very likely” by the end of the month.

Brent had earlier reached $119.50 per barrel on Monday, its highest level since mid-2022, before retreating after US President Donald Trump said the war with Iran might end soon.

The International Energy Agency said the Middle East war is causing the largest disruption to oil supplies in the history of global markets, one day after approving a record release of 400 million barrels from strategic reserves.

In its monthly report, the agency said Gulf countries in the Middle East have reduced oil production by at least 10 million barrels per day, equivalent to about 10% of global demand. However, analysts at Energy Aspects expressed doubts that the full volume would actually be released, noting that 400 million barrels of oil and petroleum products would cover only about 25 days of the current supply disruption.

Goldman Sachs expects Brent crude to average around $98 per barrel in March and April before falling to about $71 in the fourth quarter. However, the bank warned that if oil flows through the Strait of Hormuz were disrupted for a month, average prices could rise to around $110 during the same period.

Analysts at ING said the only way to sustainably lower oil prices would be to restore oil flows through the Strait of Hormuz, adding that failure to do so could mean that further price peaks still lie ahead.

On the security front, reports said Iranian boats loaded with explosives attacked two fuel tankers in Iraqi waters, setting them on fire and killing one crew member after four vessels were struck by projectiles in Gulf waters.

Lebanon’s Hezbollah also launched its largest rocket barrage since the start of the war on Wednesday evening, prompting Israeli strikes on Beirut. The attack raised concerns that Yemen’s Houthi group could join the conflict alongside Iran, potentially worsening shipping disruptions in the Red Sea.

In an effort to offset supply losses, Saudi Arabia increased crude exports through the Yanbu port on the Red Sea in recent days. Meanwhile, China ordered an immediate ban on refined fuel exports during March as a precautionary step to prevent a potential domestic fuel shortage resulting from the Middle East conflict.

The British pound moved toward its third consecutive daily loss against the US dollar on Thursday as concerns mounted about a prolonged rise in energy prices and escalating tensions in the Middle East war, prompting investors to seek the dollar as a safe-haven asset.

Bank of England Governor Andrew Bailey is scheduled to deliver remarks later on Thursday, just one week before the central bank’s policy meeting to decide interest rates.

As oil and natural gas prices climb, investors’ expectations for inflation have also increased. Although the pound has fallen only 0.7% since the war began on February 28, it remains among the best-performing currencies among economies that rely heavily on energy imports.

By comparison, the euro and the South Korean won have each lost between 2% and 3% of their value, while both the Indian rupee and the Japanese yen have declined by more than 1.5%. The weakness of the euro is also evident in its 1.3% decline against the pound since the conflict began.

In recent trading, the pound slipped 0.2% against the dollar to $1.3386. It also weakened against the euro, which rose 0.1% to 86.3 pence.

Sharp shifts in interest rate expectations

Higher bond yields and expectations of interest rate hikes typically support currencies, which has partly helped limit the pound’s losses. However, market expectations for monetary policy have fluctuated sharply over the past two weeks.

At the end of February, markets expected the Bank of England to cut interest rates twice this year. Those expectations have now shifted to reflect roughly a 50% probability of one rate hike by December.

In Europe, swap market pricing indicates that the European Central Bank could raise interest rates twice this year, while the US Federal Reserve appears less inclined to implement the two rate cuts markets had previously expected.

Fiona Cincotta, strategist at City Index, said the sharp repricing of Bank of England rate-cut expectations is providing some support for the pound. She added that attention will remain focused on geopolitical developments and concerns about rising energy prices and inflation resulting from the war.

As investors increasingly bet that several major central banks may raise interest rates rather than cut or hold them steady, they have been selling short-term bonds, which typically benefit from stable or falling interest rates.

UK government bonds have been the hardest hit among major markets. Two-year gilt yields have risen about 50 basis points since the war began, compared with increases of 38 basis points in Italian yields, 30 basis points in Australian yields, and just 21 basis points in two-year US Treasury yields.