Oil prices have reached seven-month highs, as traders reacted to heightened tensions between the US and Iran ahead of nuclear talks this week.

US crude futures rose to $67.28 a barrel on Monday, while Brent crude touched its highest level since 31 July at $72.50 a barrel. Prices fell back late in the session, but were up again on Tuesday morning, approaching Monday’s highs.

James Hosie, a research analyst at Shore Capital, said oil markets were:

rationally trying to price in a risk premium for oil prices, given the disruption a conflict could have on global supplies”.

The risk of possible military escalation in the Middle East is gaining traction, and thus, traders appear to hedge against worst-case scenarios,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova. She added that the current prices were “largely driven by anticipation rather than actual supply loss”.

Washington and Tehran are set to hold a third round of nuclear talks in Geneva this Thursday.

There is some debate emerging around the premise that supports Trump’s latest round of tariffs.

The president invoked Section 122 of the Trade Act of 1974, which allows him to impose duties for up to 150 days “in situations of fundamental international payments problems”. Those include “large and serious United States balance-of-payments deficits” and an ‘imminent and significant depreciation of the dollar”.

Trump’s latest tariff order argues that the US has a goods trade deficit of $1.2 trillion and a current account deficit of 4% of GDP.

Some economists have contested this. Gita Gopinath, a former International Monetary Fund First Deputy Managing Director, said in an interview with Reuters:

We can all agree that the US is not facing a ⁠balance of payments crisis, which is when countries experience an exorbitant increase in international borrowing costs and lose access to financial markets.

She rejected the White House’s claim that a negative balance on the US primary income for the first time since 1960 was evidence of a large and serious ⁠balance of payment problem. Instead, she said the negative balance was due to a large increase in foreign purchases of US stocks and risky assets over the past decade, which have outperformed foreign stocks.

Bitcoin has continued to drop this morning, down 2% to $63,149, as the cautious mood in markets ripples out to the world of crypto. It is now down by about 20% this month alone, which has put it on track for its worst monthly performance since June 2022.

It would also put the original cryptocurrency on track for its fifth consecutive monthly decline, which would be its longest losing streak since 2018, according to Bloomberg.

William Bain, head of trade policy at the British Chambers of Commerce, warns that while the 10% tariff is not as bad as threats of a 15% rate, the changing policies are making it harder for businesses to plan ahead.

He says:

It is far from clear what will happen next, and whether a higher tariff rate is still on the way. Despite the immediate reprieve, there is fresh uncertainty for UK firms exporting goods to the US.

This makes it very difficult for firms to understand the prices and margins they will be able to secure for their goods, currently under production, for export in several months’ time. Inevitably this will have an impact on their sales and hit the economy.

The BCC has provided government with a six-point plan to guard against the worst economic outcomes from the new tariffs and potential further hikes.

This includes continued negotiation with the US government, engagement with the US Congress, an uplift in UK Export Finance capacity and reviewing the UK’s Global Tariffs.

The risk of further tariff pain to come is still real and the government must do everything it can to prepare for the worst.”

Trump’s new global 10% tariff is being applied under Section 122 of the 1974 Trade Act, which allows the president to impose the charge for 150 days without congressional approval.

The president has used this approach after the supreme court ruled that he had violated an emergency-powers law to enact his “reciprocal” tariffs on imported goods from countries around the world.

The new tariffs do have some exemptions, including goods that were part of the North American trade pact between the US, Canada and Mexico. The order also includes an exception for some agricultural goods.

It is not clear yet what the fallout will be. The UK has not ruled out retaliation, with a spokesperson for Keir Starmer saying yesterday that “nothing is off the table”, and the chair of the EU Parliament’s trade committee, Bernd Lange, said yesterday:

We want to have clarity from the US that they are respecting the deal because that’s a crucial element.”

Trump has warned that any country that wants to “play games” with the supreme court decision would be “be met with a much higher Tariff, and worse, than that which they just recently agreed to.” But Jim Reid, of Deutsche Bank, says it is unclear how the president might respond to developments in the UK and the EU.

At the moment the rate is 10% with White House officials stating that they are working on a formal order to raise to 15%. Perhaps the stacking concern is delaying things for now. Late yesterday, we also saw the WSJ and Bloomberg report that the administration was preparing new Section 232 national security investigations into several industries including batteries, telecom equipment and industrial chemicals.

Remember that Trump’s delivering the State of the Union address tonight, so it’s possible we might get a better sense of the next steps on tariffs…net-net we still think the effective tariff rate will fall this year and that the world post-SCOTUS will see lower tariffs than the pre-SCOTUS world.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

President Donald Trump’s new tariffs have come into effect today at a rate of 10%, after the US supreme court blocked many of his import taxes on Friday.

The president signed an executive order last Friday authorising the 10% tariffs just hours after the supreme court ruling. He later threatened to raise the rate to 15%, but did not officially do so by Tuesday 12.01am time in Washington, when the 10% levy came into effect.

However, Bloomberg is reporting that officials in the White House are working on a formal order that will increase the rate to 15%.

It comes after Trump declared this week that he can use tariffs in a “much more powerful and obnoxious way”.

The new tariffs, which Trump is applying under Section 122 of the 1974 Trade Act, have triggered uncertainty with a number of US trading partners, including the UK (which negotiated a 10% rate with the US last year) and the EU.

On Monday the EU paused the process of ratification of the deal it had struck with the US last July for the second time in a month, after it froze and unfroze the deal in the wake of Trump’s Greenland threats. The deal was for 15% blanket tariffs on EU imports that were inclusive of previous levies.

Meanwhile in the UK, a spokesperson for Keir Starmer, when asked whether retaliatory tariffs were an option, said:

No one wants to see a trade war. No one wants to see a situation that’s escalated. But as I say, nothing is off the table at this stage.

The agenda

• 5am GMT: EU car registrations

• 11am GMT: CBI Distributive trades for Feb

• 2pm GMT: Case-Shiller US home price index

• 2.15pm GMT: Bank of England governor to discuss MPC decision to hold interest rates at 3.75% with the Treasury Committee