Oil prices have rocketed in their biggest weekly gain for six years amid warnings that oil and gas production in the Gulf could be halted entirely in the coming days.
With no sign of a swift resolution to the conflict in the Middle East, commodity prices and stock markets are being hammered, prompting concerns that the impact will trickle down to working people, who may see price hikes to their fuel, heating energy and even some foods and day-to-day products.
By Friday evening, benchmark Brent crude prices shot up by as much as another 10 per cent to 94 US dollars a barrel on Friday evening, reaching levels not seen for three years, after Kuwait reportedly joined Qatar and said it was beginning to halt energy production.
Qatar’s energy minister, Saad al-Kaabi, warned all oil and gas exporters in the Gulf could stop production within days. Speaking to the Financial Times, he said conflict in the Middle East, which plays a crucial role in global energy supplies and shipping routes, may “bring down the economies of the world”.
Fears of a new cost of living crisis in the UK are consequently growing, with experts warning that rising prices and energy bills could fuel higher inflation, having a knock-on impact on mortgages, savings and spiralling food costs.
The sharp gains since the US-Israel war with Iran began on Saturday mean oil prices have risen by more than 25 per cent so far this week – the biggest weekly gains since early 2020 at the height of the Covid-19 pandemic.
Markets are bracing for longer-lasting volatility as the US and Israel continue to strike Iran, with Tehran authorising revenge attacks in countries across the region and impacting the passage of goods through the Strait of Hormuz.
Greg Jackson, the chief executive of Octopus Energy, told Times Radio that energy markets were “in a state of turmoil” after Iran warned ships not to pass through the waterway, and Qatar said it had halted gas production following attacks on its plants.
Comments from US president Donald Trump that there would be no end to the conflict until an “unconditional surrender” of the Iranian regime have further dashed hopes of a de-escalation.
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Kathleen Brooks, research director at XTB, said: “There is not much to stop (oil) from hitting 100 dollars per barrel in the near term. Until the oil price stabilises, it’s hard to see how stock markets and bond prices can recover.”
She cautioned over further stock market falls next week.
“If the war continues to escalate over the weekend, we think that markets will continue to sell off, especially after the rapid increase in oil prices today,” she said.
New analysis from the Energy and Climate Intelligence Unit (ECIU) suggested that oil trading in a sustained fashion at $100 (£74) a barrel could see the price per litre of petrol jumping from 135p today to 150p – costing drivers doing 8,000 miles a year close to £140 extra.
UK government borrowing costs have also risen sharply this week due to inflation fears.
The yields on 10-year government bonds, also known as gilts, have jumped from 4.27 per cent at the start of the week to 4.62 per cent on Friday, with fears that soaring fuel and energy bills will put paid to further interest rate cuts.
“The rapid repricing of monetary policy expectations and the UK’s history of high energy prices means that UK gilts are particularly vulnerable to this energy price spike,” Ms Brooks said.
The latest escalation comes after a tumultuous year for global economies, including Trump instigating tariffs on nations around the world during the prolonged tension between Iran and Israel, as well as Russia’s invasion on Ukraine, which hugely affected commodity prices.
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