Oil climbed past $100 a barrel for the first time since May as renewed conflict in the Middle East raised fresh concerns about global energy supplies. Brent crude, the global benchmark, surged by more than 6% on Thursday after several days of gains as the US intensified strikes linked to Iran.
Prices jumped further after Houthi forces in Yemen attacked tankers in the Red Sea, threatening a key export corridor that Saudi Arabia has been using as an alternative to the Strait of Hormuz.
UK gas prices have also moved higher over the past month: the benchmark stands around 150p per therm, up from roughly 98p at the end of June.
Markets had eased earlier following a temporary ceasefire between the US and Iran, pushing oil back to levels seen before the start of broader military actions on 28 February. That truce appears to have broken down, and US Senator Marco Rubio said Iran’s leaders were “not ready to make a deal.”
The renewed fighting risks lifting inflation in many countries, including the UK and the US, since higher energy costs typically feed through to consumer prices. Petrol and diesel tend to become more expensive when oil rises, and businesses often pass higher transport and input costs on to customers, which can push up food and other goods.
Inflation has eased recently — the UK’s annual rate fell to 2.6% in the year to June, helped in part by slower fuel price growth, while US inflation sits at about 3.5%. But analysts warn the respite could be short-lived if energy prices keep climbing.
New data on Thursday showed UK petrol up by 5p a litre since early July, reaching nearly £1.56 a litre on average, while diesel averages about £1.72 a litre, according to the RAC. In the US, average gasoline prices have crept back above $4 a gallon, rising from $3.92 a month ago, according to AAA.
“More expensive fuel and energy can ripple through the wider economy, increasing costs for businesses and ultimately feeding through into the price of food and other goods,” said Jonathan Raymond, an investment manager at Quilter Cheviot. He warned that sustained high energy prices would complicate central banks’ fight against inflation and could pressure policymakers to keep interest rates higher for longer.
The Bank of England has held UK interest rates at 3.75% in each of its last four meetings. Paul Dales, chief UK economist at Capital Economics, expects the Bank to maintain that stance again, though many economists still think rates could be eased next year if energy-driven pressures subside.
In the US, Kevin Warsh, the newly appointed chair of the Federal Reserve, told Congress the central bank has “no tolerance to persistently elevated inflation.” His predecessor, Jerome Powell, had faced pressure from former President Donald Trump to cut rates; Mr Trump has indicated he expects lower borrowing costs. At Warsh’s first meeting, the Fed left US interest rates in a 3.5%–3.75% range and emphasized a commitment to restoring price stability amid the uncertainty caused by the Middle East conflict.
