Oil prices soared and stocks sank after Donald Trump vowed in a televised speech to hit Iran “extremely hard” over the coming weeks, knocking investors’ hopes of a near-term end to the conflict in the Middle East.

Brent crude prices jumped by 8% on Thursday morning to pass $109 a barrel, reversing Wednesday’s drop when hopes of a de-escalation in the Iran war pushed the international benchmark below the $100-a-barrel mark at one point.

Stocks in Asia suffered, with Japan’s Nikkei index falling 2.4%, while China’s CSI 300 index dropped 1.36%. South Korea’s Kospi, which has been particularly sensitive to the crisis, tumbled by 4.8%.

In Europe, Germany’s Dax share index fell 2%, while France’s Cac 40 dropped by 1.15% and Italy’s FTSE Mib was down 1.45%. The FTSE 100 in London opened about 0.7% down, but later eased to sit roughly unchanged as the rising oil price lifted the fossil fuel companies BP and Shell, which climbed 4.5% and 3.1% respectively.

Government borrowing costs were also on the rise, with the yield – or interest rate that issuers have to pay – on 10-year UK gilts rising four basis points to 4.886%. The two-year UK bond yield rose by six basis points to 4.36%, reflecting increased fears of an inflation increase from higher energy costs.

Chris Beauchamp, the chief market analyst at IG, said investors were betting on the effects of long delays to oil supply deliveries from the Gulf, after Trump failed to provide any guidance on how the US-Israeli conflict with Iran might come to an end.

“In what might be the most dramatic April fools of recent years, Donald Trump did nothing of what was expected in his speech. Instead of ‘no more war’, we got ‘no, more war!’, with heavier strikes expected and a fresh warning of attacks on power plants,” Beauchamp said.

“This leaves markets back where they were last week, and now we have to price in hundreds of millions of barrels of oil that aren’t coming out any time soon … markets are back to pricing in economic catastrophe.”

The US dollar gained 0.6% against a basket of major currencies on Thursday, gaining ground as investors fled to the greenback as they sought safe haven assets. This move pushed the pound down by almost a cent to $1.321, reversing Wednesday’s gains.

The market movements have already been taking their toll on consumers, including in the UK, with the Bank of England having warned on Wednesday that 1.3 million more homeowners would probably see their monthly mortgage payments rise because of financial shocks from the Iran conflict.

Data released by the RAC on Thursday also showed that rising petrol and diesel prices jumped by a record amount in March, as rising oil prices translated to higher prices at the pumps for drivers.

It said the average price of a litre of unleaded petrol rose by 20p from 132.83p on 1 March to 152.83p by the end of the month. That surpasses the previous all-time biggest monthly jump of 16.6p recorded in June 2022, after Russia’s invasion of Ukraine.