Oil prices have shot up further after US and Iran attacks over the weekend, in a move putting unwelcome pressure on energy and fuel costs. Benchmark Brent crude rose 4% to 79 US dollars a barrel amid confusion over the Strait of Hormuz, with America and Iran both claiming control over the vital shipping route.
Gas Prices Surge Amid Strait Dispute
European and UK gas prices have also surged back up to levels seen a month ago. The strait – through which a fifth of the world’s oil and gas is normally carried – continues to be a key issue in fraught peace-deal negotiations between the US and Iran.
Oil prices had returned to pre-war levels in June after an interim peace deal was signed by the US and Iran, with the countries declaring the Strait of Hormuz to be reopened. But Iranian strikes on ships passing through the Strait have prompted retaliatory attacks by the US and there are fears the war could fully resume.
Impact on Motorists and Inflation
It is set to send prices at the petrol pumps surging higher once more, coming just ahead of the holidays and putting pressure on motorists as the summer getaway season gets into full swing. Susannah Streeter, chief investment strategist at the Wealth Club, said: “The war has underlined the huge importance of the waterway, which is so vital for shipments from the region. The Strait has become the United States’ Achilles’ heel in this conflict and Iran’s strongest bargaining chip. It’s a strategic chokepoint that gives Tehran disproportionate leverage despite America’s overwhelming military superiority.”
She added: “While prices are still not at crisis levels, the creep upwards will ignite fresh inflationary worries and concerns about how far higher interest rates could move.”
Borrowing Costs Rise
UK long-term borrowing costs also lifted higher on market concerns over what the Iran war flare-up could mean for inflation and interest rates, as well as wider uncertainty over plans by incoming Prime Minister Andy Burnham, who is expected to be named Sir Keir Starmer’s replacement next Monday. Yields on 30-year gilts and 10-year gilts both lifted 4 basis points to 5.64% and 4.92 respectively.
