By Karl Blum and Naveen Thukral

CHICAGO/SINGAPORE, March 9 (Reuters) - Oil prices jumped 29 percent on Monday to their highest level since mid-2022 before retreating to settle up 7 percent, and gold fell more than 1 percent after an escalation of the Iranian war put pressure on global energy supplies, boosted the dollar, and reduced hopes for an interest rate cut.

Agricultural markets, led by edible oils used as a feedstock for biofuels, reached their highest levels in months or even years before retreating as crude oil markets fell from their peaks. Aluminum hit a four-year high on supply concerns, even as other metals struggled due to the strong dollar.

Tony Sycamore, a market analyst at IG, said in a note, "The sharp reactions stem from the markets not seeing a clear way out of the escalating conflict in the Middle East, which has now become a high-stakes confrontation in which neither side seems willing to compromise first."

He added, "The risk of more lasting economic damage continues to increase day by day."

Trading began volatile on Monday when Iran appointed Mojtaba Khamenei as successor to his father, Ali Khamenei, as supreme leader, suggesting that conservatives remain firmly in control in Tehran more than a week after the outbreak of conflict with the United States and Israel.

But the rise in oil prices has eased, stock markets have rebounded, and the dollar has given up its gains as world leaders addressed concerns about crude oil supplies and US President Donald Trump predicted that the war could end soon.

* Rise and fall in oil prices

The escalation of the US-Israeli war with Iran has led some major Middle Eastern oil producers to cut supplies for fear of prolonged disruption to shipping through the Strait of Hormuz.

Brent crude futures settled up $6.27, or 6.8 percent, at $98.96 a barrel, while U.S. West Texas Intermediate crude rose $3.87, or 4.3 percent, to $94.77.

Prices turned negative shortly after the settlement following news of a phone call between Trump and Russian President Vladimir Putin. Reuters reported that sources said the Trump administration was considering easing sanctions on Russian oil to help calm global energy prices.

In agricultural markets, Malaysian palm oil prices surged 9% and Chicago soybean oil prices reached their highest levels since late 2022 amid rising crude oil prices, though they later pared their gains. Wheat and soybean prices hit their highest points since mid-2024, and corn reached a 10-month high before mostly closing lower.

Gold fell by more than one percent after a stronger dollar weighed on the price of the dollar-denominated metal, while rising energy costs fueled concerns about inflation and reduced prospects for near-term interest rate cuts.

The dollar approached its highest level in three months, which it reached last week, but pared its gains after Trump's comments that the war was "completely over" reassured investors' fears about a prolonged conflict that could disrupt global energy supplies and weigh on economic growth.

Oil-driven inflation fears and delayed interest rate cuts likely boosted U.S. Treasury yields and the dollar, outweighing demand for safe havens and pushing gold lower.

Aluminum jumped to its highest level in four years amid growing concerns about supply due to the war in the Middle East.

The benchmark three-month aluminum index on the London Metal Exchange reached its highest level since March 2022 at $3,544 per ton.

Other base metals were also affected by the rising dollar.