FTSE 100 Drops 0.81% as Oil Surges Past $107 and Treasury Yields Hit Highest Since 2007 Amid Hormuz Tensions

LONDON — Britain's benchmark FTSE 100 index fell 0.81% to 10,610.81 by mid-morning Tuesday, down 86.76 points, as surging oil prices tied to fresh disruption in the Strait of Hormuz combined with a sharp rise in U.S. Treasury yields to pressure global equity markets ahead of this week's central bank decisions.

The index had swung within a wide range Tuesday, trading between 10,586.39 and 10,697.76, giving back the modest gains posted in the previous session. The FTSE 100 had closed Monday at 10,697.57, up 0.4%, supported by defensive stocks in the healthcare and consumer goods sectors, even as the mid-cap FTSE 250 fell 0.6% to 23,834.48 that same day, reflecting a narrower rally concentrated in larger, more defensively positioned companies.

Oil prices remained the dominant driver of Tuesday's selloff. Brent crude traded near $107 a barrel, up more than 1%, as fears of energy supply shortages intensified following an attack on Saudi oil infrastructure and escalating tensions surrounding the Strait of Hormuz. Iran's Islamic Revolutionary Guard Corps claimed Tuesday that it had downed a U.S. MQ-1 drone near the strait, adding to the sense of an increasingly volatile standoff in one of the world's most critical energy corridors. Shipping data compiled by Kpler and cited by Reuters showed vessel transits through the strait falling to just four on Monday, down from ten the day before, underscoring how severely the crisis has curtailed normal maritime traffic through the waterway.

The energy market disruption extended beyond oil. Andrew Barry, chairman of LNG market development at ExxonMobil, said at the Gastech 2026 conference in Bangkok that he expects any Middle East LNG disruption to prove "short-term," citing the region's historical track record of reliability even amid periods of instability. Shell, the world's largest LNG trader, offered a more sobering assessment of the damage already done, estimating that roughly 36 million tonnes of Middle East LNG supply has been lost so far this year as a result of the ongoing conflict.

The conflict's toll has extended to civilian populations as well. Yemeni Prime Minister Shaya Mohsen Zindani accused Houthi forces of killing and displacing civilians during a recent advance along the country's west coast, saying "what is happening on the west coast is a repetition of the Houthi militia's pattern of subjugating local communities through killing and displacement." The Houthis, for their part, said Saudi airstrikes had struck a complex in the Khadir district of Yemen's Hodeidah governorate, illustrating the multiple, overlapping fronts of the broader regional conflict currently unsettling energy markets.

Compounding the pressure on UK and global equities, the yield on the 10-year U.S. Treasury note climbed above 5%, reaching 5.02% and marking its highest level since 2007, as investors positioned for an almost certain interest rate increase from the Federal Reserve at its policy meeting Wednesday. Rabobank noted that overnight index swaps now imply traders see a rate hike this week as nearly certain, a shift in expectations that has pushed borrowing costs higher across global markets and weighed particularly hard on growth-oriented and rate-sensitive stocks.

Wall Street had already closed lower Monday, with technology and semiconductor stocks under particular pressure amid continued investor unease over the pace of artificial intelligence development, following a widely discussed essay from a leading AI executive over the weekend calling for the industry to slow down. That volatility carried over into European trading Tuesday, with Germany's DAX falling as much as 0.5% and France's CAC 40 dropping 0.64%, a decline roughly twice the percentage loss recorded in London, suggesting the broader European selloff reflected growth concerns extending well beyond any single market-specific headline.

The British pound also came under pressure, falling 0.21% against the U.S. dollar to $1.3472. Domestic UK economic data added to the cautious tone, with figures based on HMRC payroll data showing the number of payrolled employees fell by 101,000 year-over-year in July, pointing to continued softness in Britain's labor market ahead of the Bank of England's own upcoming interest rate decision.

Despite the broader market weakness, several UK companies posted encouraging earnings updates Tuesday. Home improvement retailer Wickes Group reported first-half adjusted pretax profit rose 1.1% to £27.6 million, with revenue growth offsetting cost inflation, and the company said it remains on track for roughly 10% growth in adjusted pretax profit for the full year, supported by continued expansion of its Design & Installation business. Review platform Trustpilot reported first-half revenue rose 23% to $151.4 million, driven by strong demand from U.S. and enterprise customers, with adjusted EBITDA climbing 46% to $26.3 million; the company maintained its full-year guidance for high-teens percentage revenue growth. Construction and infrastructure group Kier Group reported full-year revenue rose 7.5% to £4.39 billion, with adjusted operating profit increasing 6.7% to £169.8 million.

With the Federal Reserve's rate decision due Wednesday, the Bank of England's own policy announcement still to come, and the situation in the Strait of Hormuz showing no signs of near-term resolution, investors are likely to remain cautious in the sessions ahead, watching closely for any signs of stabilization in either the energy market or the broader global bond market that has driven much of Tuesday's pressure on UK and European equities.