A collective sigh of relief swept across global markets as tensions in the Middle East appeared to cool down.

This followed Iranian authorities downplaying reports of an Israeli attack on their soil, a development that had initially sent oil and gold prices soaring.

Earlier in the week, Brent crude, the international benchmark for oil prices, had spiked above $90 a barrel after news emerged of a potential Israeli strike on Iran.

However, Iranian state media countered these claims, asserting that no damage had occurred in the targeted area.

This news triggered a reversal in oil prices, with Brent settling back to around $87 a barrel.

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The initial surge in oil prices was fueled by anxieties surrounding a potential escalation of conflict in the Middle East.

The region is a critical producer of crude oil, and any disruption to its exports could have severe consequences for global energy markets.

Investors were closely monitoring the situation following Iran's direct drone and missile attack on Israel last weekend.

Beyond the immediate impact on oil supplies, rising oil prices also raised concerns about inflation.

Higher oil prices often translate to increased fuel and energy costs, which can contribute to a rise in the general cost of living.

With inflation already a pressing issue in many countries, including the UK where it remains above the Bank of England's target, further increases fueled by oil prices could complicate efforts to control it.

Randeep Somel, a fund manager at M&G Investment Management, echoed these concerns in a recent interview.

"The concern for markets would mainly be the inflationary one, that this would actually add to inflation," Somel stated, highlighting anxieties that rising oil prices could exacerbate inflation.

He further noted that while inflation rates have shown signs of slowing, they remain above the Bank of England's target in the UK.

This has led some economists to believe that a potential cut in interest rates, a tool used to manage inflation, might be delayed until later in the year.

While the situation in the Middle East remains fluid, the de-escalation of tensions has provided a temporary reprieve for global markets.

However, underlying concerns about potential supply disruptions and the inflationary impact of higher oil prices persist.

Investors will continue to monitor developments closely and assess their potential impact on the global economy as the situation unfolds.