Oil prices have soared to their highest level since 2022, with benchmark Brent crude briefly surpassing 126 US dollars (£94) a barrel, amid reports that US President Donald Trump is preparing to escalate the conflict with Iran through further military action.
Surge in crude prices
The cost of Brent crude jumped nearly 7% at one point, reaching a peak not seen since Russia's invasion of Ukraine in 2022. Later, it settled at just over 122 dollars a barrel. The surge comes as hopes for a resolution to the war and the reopening of the critical Strait of Hormuz shipping route were dashed, following reports that peace talks between the US and Iran have broken down.
Market reactions
Asian markets experienced heavy falls overnight due to the speculation. Japan's Nikkei 225 and Hong Kong's Hang Seng index both dropped by over 1%. The spike in oil prices is expected to stoke fears of rising petrol prices, with concerns that the global energy shock could feed into a sharp increase in UK inflation if the Middle East conflict continues.
The Bank of England is set to announce its latest decision on interest rates at noon. While borrowing costs are widely expected to remain on hold, experts warn that a hike could still be on the cards if the conflict keeps pressure on UK inflation.
Reports indicate that President Trump has rejected Iran's proposals to reopen the Strait of Hormuz and is preparing to launch a series of strikes on Iran, which would effectively end the fragile ceasefire currently in place.
