The price of oil surged past $100 a barrel for the first time in two months on Thursday, climbing from $95 the previous day, as fears of a widening Middle East conflict threaten to disrupt global oil supplies. The escalation comes amid heightened tensions between the US and Iran, combined with attacks by Yemen's Houthi militia on Saudi oil tankers in the Red Sea.
The Houthis claimed responsibility for attacks on two Saudi tankers, the Encelia and Layla, using ballistic and cruise missiles and drones, leaving one vessel ablaze. The group accused the crews of violating a naval blockade imposed by the Houthis. Analysts warned that the disruption to key oil trade arteries through the Bab al-Mandab strait and the Strait of Hormuz could push prices to $120 a barrel, dealing a blow to households and the global economy.
The oil price spike rippled through financial markets, with share prices falling on both sides of the Atlantic. New York's tech-heavy Nasdaq index dropped by more than 2%, while Tesla shares crashed 12% on lower-than-expected profits. Government borrowing costs for major economies also rose as investors dumped US, German and Japanese bonds, reigniting fears of inflationary pressures.
In the UK, the yield on 10-year government bonds climbed above 5.1% for the first time since May, partly due to investor jitters over the new prime minister Andy Burnham's tax and spending plans. Chris Beauchamp, chief market analyst at IG, said: 'Government bond yields continue to climb, spelling major trouble for developed economies and risking a repeat of the March/April 2025 market panic.'
The market had previously enjoyed some respite, with oil falling to lows of $71 in early July amid ceasefire hopes, but fresh hostilities after a collapsed US-Iran agreement have reversed the trend. The International Energy Agency's Fatih Birol warned that while 'cushioning factors' have cooled the market so far, there is no room for complacency given the escalating violence.
