The price of Brent crude surged past $100 a barrel on Thursday for the first time since May, rising more than 6% as the escalating Middle East conflict threatened to strangle global oil supplies through two critical arteries.
The sharp increase came after Yemen’s Houthi militia claimed responsibility for attacks on two Saudi Arabian oil tankers, the Encelia and Layla, using ballistic and cruise missiles and drones. One vessel was left ablaze. The Houthis accused the crews of violating a naval blockade in the Red Sea, raising fears that the group could throttle Saudi exports via the Bab al-Mandab strait — a key route to bypass the Strait of Hormuz, already disrupted by US-Iran hostilities.
“Oil hits $100 as Houthi attacks threaten Saudi exports, reigniting UK inflation fears.”
Oil prices had fallen back below $100 in late May and dipped to $71 at the start of July amid hopes of a ceasefire between the US and Iran. But those hopes evaporated this week after US Secretary of State Marco Rubio said Iran was “not ready to make a deal”. The renewed fighting has reignited fears that oil could climb to $120 a barrel, a blow to households and the global economy after years of energy cost inflation.
The impact is already being felt at the pump. UK petrol prices have risen 5p a litre since the start of July, reaching nearly £1.56, while diesel averages £1.72 a litre, according to the RAC. In the US, gasoline has surpassed $4 a gallon, up from $3.92 a month ago, motorist group AAA said. UK gas prices are also climbing, with the benchmark now around 150p per therm, up from 98p at the end of June.
“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, investment manager at Quilter Cheviot. “This creates another headache for central banks as they continue their battle against inflation.”
Inflation in the UK stood at 2.6% in the year to June, helped by slowing diesel and petrol prices, but the renewed conflict raises questions over whether that slowdown will prove short-lived. The Bank of England has held interest rates at 3.75% for four consecutive meetings. Paul Dales, chief UK economist at Capital Economics, said the Bank will “almost certainly” hold again. If energy prices remain elevated, Raymond warned, policymakers “may come under pressure to keep rates higher for longer or even raise them”, a blow to mortgage holders.
The turmoil also hit stock markets, with New York’s tech-heavy Nasdaq index falling more than 2% amid fears of an AI bubble. Shares in Tesla crashed 12% after lower-than-expected profits. In a sign of further escalation, Donald Trump warned that the US is weighing a “massive attack” on Iran, according to the Financial Times.
Fatih Birol, head of the International Energy Agency, cautioned this week that “cushioning factors” have so far prevented runaway prices, but said there was no room for complacency. For Andy Burnham, whose cost-of-living drive now faces fresh headwinds, and for households already straining under higher costs, the question is how long the cushion can hold.