Oil prices have surged past 100 dollars a barrel for the first time since July, as the escalating conflict between the US and Iran sends shockwaves through global energy markets.
The spike came after US forces struck multiple Iranian oil tankers on Tuesday night, a move officials said was in direct response to further attempted missile attacks on a Navy warship.
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Financial markets responded swiftly, with the price of Brent crude climbing around two per cent on Wednesday morning.
The benchmark briefly topped the 100 dollar mark before easing back to roughly 99.50 dollars a barrel, a level not reached since late July.
The fighting marks more than six months of war between Washington and Tehran, with the latest escalation dampening hopes among investors that any peace agreement can be secured this year.
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Iran has also retaliated by targeting a US military base in Jordan following the strikes on its tankers, while Houthi forces backed by Tehran launched attacks on several Saudi Arabian cities.
The widening conflict is fuelling concerns about disruption to oil supplies, particularly as demand is expected to rise with the approach of the colder months.
Susannah Streeter, chief investment strategist at Wealth Club, expects oil prices to remain high after rising above 100 dollars a barrel today.
She said: “While other oil-producing nations have increased production, it’s not enough to offset the disruption wreaked across the Middle East, with prices looking set to stay stubbornly around $100 a barrel.
“UK and European gas prices have also risen again to levels not seen since December 2022.
“Usually, weaker demand for gas and lower prices during the summer months means stocks can be replenished, but the crisis has kept this process on go slow, and as we head towards the colder winter months, storage levels in the UK and Europe are the lowest for 13 years, keeping nations reliant on imports of expensive supplies.
“It’s set to add to the bill burden of households this winter, with domestic energy prices set to ramp up if a resolution to this conflict remains elusive.”
Higher energy costs and supply uncertainty have already begun feeding through to prices at the pump for British motorists.
According to data from the AA, petrol prices have jumped by 4.4p a litre since September 1, while diesel has increased by 4.1p over the same period.
Figures from Tuesday showed the average cost of petrol at UK forecourts stood at 166.2p a litre. Diesel was even steeper, averaging 187.7p a litre.
The sharp rises are adding to the financial burden on households and businesses already grappling with elevated living costs.
With oil prices remaining volatile and supply disruptions showing no sign of easing, there are growing fears that fuel costs could climb further still in the weeks ahead.
Richard Hunter, head of markets at Interactive Investor, said: “The outlook in the Middle East has recently worsened once more, with any signs of detente looking elusive.
“This adds another level to the inflationary concerns which have blighted investor thinking over recent weeks.”
Ms Streeter warned that the conflict appeared to be becoming more entrenched, creating chronic supply worries around crude and gas at a time when trade tensions are also threatening to push up the cost of goods.
Ms Streeter said: “Given the sustained impact of higher energy prices, the worry is that firms will have little choice, other than to raise prices, which risks creating another inflationary spiral.”
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