Global oil prices surged following Israel’s attacks on Iran, causing significant concern among traders regarding potential disruptions in oil supplies from the energy-rich Middle East. The benchmark Brent crude price climbed by more than 10% at one point, marking its highest level since January, before settling on a closing price of $74.23 a barrel, which represented a gain of more than 7% from the previous day.
While prices surged, they remain over 10% lower compared to the same time last year and are significantly below the peaks experienced in early 2022, which saw crude prices soar above $100 per barrel after Russia’s invasion of Ukraine.
The geopolitical tensions have spurred declines in global stock markets, with the Nikkei index in Japan and the FTSE 100 in the UK both closing lower. In the United States, the Dow Jones Industrial Average fell by 1.79%, while the S&P 500 decreased by 0.69%. Amidst these declines, “safe haven” assets like gold and the Swiss franc experienced gains, with gold reaching its highest price in nearly two months, rising to $3,423.30 an ounce.
Israeli Defense Forces reported that Iran launched around 100 drones towards Israel in response to their attack, leading analysts to speculate about the potential escalation of conflict in the region. Vandana Hari of Vanda Insights remarked that while the situation is currently volatile, it could de-escalate quickly, as witnessed during previous confrontations between the two nations.
Analysts at Capital Economics suggested that if Iranian oil production and export facilities were struck, Brent crude prices could potentially surge to between $80 and $100 a barrel. However, they noted that such spikes could trigger increased output from other oil producers, which might mitigate prolonged price increases and associated inflation effects.
In light of these developments, Rod Dennis from the RAC emphasized that it is “too soon” to predict how the latest oil price hike will impact petrol prices, pointing to the importance of sustained wholesale fuel prices and retailers’ pricing strategies in the coming days.
Overall, while the current situation presents challenges, there are mechanisms in place that could stabilize prices and keep inflation in check as the global market responds to these geopolitical tensions.