The price of oil shot up to $100 a barrel on Thursday for the first time in two months after fresh attacks in the Red Sea threatened to escalate the Middle East conflict further.
Price rise after US warning
The benchmark oil price has steadily risen in recent weeks since the US-Iran ceasefire deal broke down. The price rise came after US President Donald Trump warned that he will hold Iran directly responsible for further attacks by Houthi rebels on ships in the Red Sea. In social media posts, he accused the Houthis of shooting at two Saudi Arabian ships overnight.
The President threatened to inflict a “major military punishment” on Iran and the Houthis if the attacks continue.
Houthi blockade plans
The Houthis had said they planned a naval blockade on Saudi Arabia around the Bab al-Mandeb area in the Red Sea, a key point for oil exports. As a result, the oil price continued to lift higher amid concerns that an intensifying conflict between US-Israeli and Iranian forces would disrupt oil supplies further.
Brent crude surged by 6.9% to $100.6 a barrel shortly before 3pm on Thursday.
Economists' forecasts
Economists at Oxford Economics said they think shipping disruption is now “increasingly likely” to continue, forecasting that oil prices will be above $85 per barrel through the rest of the year.
Lucy Smith, senior investment manager at Killik & Co, said: “It’s a stark reminder of how quickly geopolitical tensions can feed into the energy markets. While this immediate spike is related to the Houthi attack rather than any new significant disruption to physical supply, an escalation in these attacks on any more critical shipping routes – or energy infrastructure – would increase concerns about the reliability of global flows, keeping prices elevated.”
Market impact
In London, equities dipped amid concerns over the rising price of oil, with the FTSE 100 index dropping by 0.96% to 10,613.61 points during the afternoon. However, shares in oil majors Shell and BP both made gains, of around 1.4% and 2.6% respectively, due to the upward pressure on energy prices.
