Global oil prices spiked sharply following a weekend of missile and drone exchanges between Israel and Iran, raising fears that rising energy costs could lead to broader inflationary pressures across the world, including in the UK.
While the price of Brent crude — the international oil benchmark — initially surged to over $78 per barrel on Friday, it has since eased to around $74.50. Nonetheless, prices remain roughly $10 higher than a month ago, underscoring how fragile global energy markets are in response to geopolitical tensions.
The brief oil shock came after Israeli airstrikes targeted Iranian military and nuclear sites, prompting retaliatory attacks. Though prices have not reached the dramatic peaks seen in 2022 after Russia’s invasion of Ukraine — when oil nearly hit $130 per barrel — analysts caution that continued instability could trigger another wave of price shocks.
“The situation is very significant and concerning,” said Richard Bronze, head of geopolitics at Energy Aspects. “But much will depend on whether the conflict escalates further or disrupts key oil routes, especially the Strait of Hormuz.”
The Strait of Hormuz, off Iran’s southern coast, is a strategic chokepoint through which around 20% of the world’s oil supply passes. Any disruption there could send oil prices soaring and severely impact the global economy. While Iran has previously threatened to block the strait, experts currently see that scenario as unlikely — though more plausible than just days ago.
Higher oil prices often filter through to consumers in the form of more expensive petrol, travel, and everyday goods. According to Capital Economics’ David Oxley, a $10 increase in crude oil prices typically adds about 7 pence to the cost of a litre of fuel at the pump. But the effects don’t stop there.
“More expensive energy increases costs across the board — from farming and food processing to manufacturing and transportation,” Oxley explained. “If energy prices remain high for a prolonged period, consumers around the world will start to feel the squeeze.”
Gas prices have also ticked upward, though any impact on household energy bills will likely be delayed due to regulatory caps and market structures in places like the UK.
The broader economic implications remain uncertain. Mohammed El-Erian, chief economic adviser at Allianz, warned the conflict could deliver “a bad shock for the global economy at a bad time,” undermining already fragile confidence in the international financial system.
Capital Economics estimates that a sustained return to $100 oil could push inflation in advanced economies up by as much as 1%, complicating efforts by central banks to lower interest rates.
Still, some analysts believe the impact may be short-lived if the conflict cools quickly. “Instability in the Middle East is nothing new,” Oxley said. “In a week’s time, it might have all blown over.”
