The price of Brent crude surged past $100 a barrel on Thursday for the first time since May, climbing more than 6% as the escalating war in the Middle East reignited fears over global energy supplies. The spike came after Houthi militia in Yemen attacked oil tankers in the Red Sea, threatening a key export route that Saudi Arabia relies on to bypass the Strait of Hormuz, and as the US stepped up military strikes against Iran.
Oil prices had been falling after a temporary ceasefire between the US and Iran, dropping back to levels last seen before the US and Israel began military action against Iran on 28 February. But the ceasefire has failed. This week US Secretary of State Marco Rubio said the people in charge in Iran were “not ready to make a deal”.
“Oil prices hit $100 a barrel as Middle East conflict escalates, sparking fuel price rises in UK and US.”
Gas prices have also risen steadily over the past month, with the benchmark UK gas price at around 150p per therm, up from about 98p at the end of June.
The ongoing conflict threatens to push up inflation for many countries, including the UK and the US. UK inflation had fallen to 2.6% in the year to June, helped by slowing diesel and petrol prices, while US inflation stood at 3.5%. But the renewed conflict raises questions over whether the slowdown will prove short-lived.
New data released on Thursday showed UK petrol prices have risen by 5p a litre since the beginning of July, hitting almost £1.56. Diesel is at £1.72 a litre, on average, according to the RAC. Average gasoline prices in the US have surpassed $4 a gallon once more, up from $3.92 a month ago, according to motoring group 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, investment manager at Quilter Cheviot. “This creates another headache for central banks as they continue their battle against inflation. If energy prices remain elevated, policymakers may come under pressure to keep interest rates higher for longer or even raise them. This would come as a blow to mortgage holders and borrowers already feeling the strain.”
The Bank of England, which sets UK interest rates, has held them at 3.75% in its last four meetings. Paul Dales, chief UK economist at Capital Economics, said he believed the Bank will “almost certainly” hold them again. But with oil back above $100, the pressure on rates – and on households – is far from over.