By Michael Race and Ben King, Business reporters
Global oil prices climbed above $100 per barrel for the first time since May, as escalating tensions in the Middle East reignited concerns over energy supplies and heightened fears of renewed inflationary pressures across major economies.
Brent crude, the international benchmark for oil prices, rose more than 6% on Thursday after several days of gains, driven by an intensification of U.S. military operations against Iran and fresh attacks on commercial shipping in the Red Sea.
According to the BBC, the latest rally underscores growing concerns among investors that prolonged geopolitical instability could disrupt oil exports from one of the world’s most strategically important energy-producing regions.
Red Sea Attacks Renew Supply Concerns
Oil prices accelerated after Yemen’s Houthi militia launched attacks on oil tankers navigating the Red Sea, threatening one of the region’s most important shipping corridors.
The Red Sea has become an increasingly critical export route for Saudi Arabia and other Gulf producers seeking alternatives to the Strait of Hormuz, through which roughly one-fifth of global oil supplies pass. Any disruption to these maritime routes raises the risk of tighter global crude supplies and higher transportation costs.
The latest developments have erased much of the price decline recorded after a temporary ceasefire between the United States and Iran earlier this year.
Ceasefire Breakdown Fuels Market Anxiety
Oil markets had retreated to pre-conflict levels following a brief pause in hostilities between Washington and Tehran.
However, renewed military activity and the collapse of diplomatic efforts have reversed that trend. U.S. Secretary of State Marco Rubio recently said Iranian leaders were “not ready to make a deal,” signalling that prospects for a negotiated settlement remain uncertain.
The renewed conflict has prompted traders to price in higher geopolitical risk premiums, pushing crude prices back into triple-digit territory.
Rising Energy Costs Threaten Global Inflation
The surge in oil prices is expected to place fresh upward pressure on inflation in both advanced and emerging economies.
Higher crude prices typically translate into increased costs for petrol, diesel, aviation fuel and industrial energy, raising operating expenses for businesses and transportation companies. These additional costs are often passed on to consumers through higher prices for food, manufactured goods and other essential products.
Natural gas prices have also moved sharply higher over the past month. The benchmark UK gas price has climbed to around 150 pence per therm, up from approximately 98 pence at the end of June, reflecting broader concerns over energy security.
Fuel Prices Rise in the UK and United States
The impact of higher crude prices is already being felt by motorists.
According to the UK’s RAC, average petrol prices have increased by around 5 pence per litre since the beginning of July to nearly £1.56 per litre, while diesel prices have risen to approximately £1.72 per litre.
In the United States, average gasoline prices have climbed back above $4 per gallon, compared with $3.92 a month earlier, according to the American Automobile Association (AAA).
Central Banks Face Fresh Policy Challenges
The renewed surge in energy prices comes just as inflation had begun to ease in several major economies.
Inflation in the United Kingdom slowed to 2.6% in the year to June, supported partly by lower fuel prices, while inflation in the United States moderated to 3.5%.
However, economists warn that sustained increases in oil and gas prices could reverse those gains, forcing central banks to delay planned interest-rate cuts or even tighten monetary policy further.
Jonathan Raymond, Investment Manager at Quilter Cheviot, said higher fuel and energy costs could have widespread economic consequences.
“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. This creates another headache for central banks as they continue their battle against inflation.”
He added that if energy prices remain elevated, policymakers may be compelled to keep interest rates higher for longer, increasing borrowing costs for businesses and households while weighing on economic growth.
Global Markets Watch Middle East Developments
Energy traders and policymakers are closely monitoring developments in the Middle East, with analysts warning that any further escalation involving Iran or additional disruptions to major shipping routes could trigger further volatility in oil markets.
For oil-importing economies, sustained crude prices above $100 per barrel would likely increase import bills, widen inflationary pressures and slow economic recovery. Conversely, oil-exporting nations could benefit from stronger export revenues, although prolonged geopolitical instability may offset some of those gains by weakening global demand and increasing market uncertainty.
