The price of oil breached $100 a barrel for the first time in two months on Thursday, driven by escalating conflict in the Middle East that threatens to disrupt global supplies. Benchmark crude rose sharply from $95 the previous day amid fears that Yemen's Houthi militia could strangle Saudi oil exports through the Red Sea, while US-Iran tensions over the Strait of Hormuz continue to mount.
Share prices fell on both sides of the Atlantic, with New York's tech-heavy Nasdaq index dropping more than 2%. Tesla shares crashed 12% after lower-than-expected profits and wider worries about AI spending. The market upheaval reflects the volatile situation in the Middle East and concerns that oil could climb to $120 a barrel, a blow to households and the global economy after years of energy cost inflation.
The Houthi militias claimed responsibility for attacks on two Saudi oil 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 in the Red Sea. This escalation marks a new front in the Gulf oil crisis, nearly five months after Tehran's effective blockade on the Strait of Hormuz triggered fears of the greatest energy supply disruption in market history.
Fatih Birol, head of the International Energy Agency, noted that “cushioning factors” have so far prevented runaway oil prices but warned there is no room for complacency. Meanwhile, government borrowing costs for major economies rose as investors dumped US, German, and Japanese bonds amid fears that a surge in oil prices could rekindle inflation. In the UK, the yield on 10-year government borrowing rose above 5.1% for the first time since May, adding to pressure on the new prime minister, Andy Burnham, over his 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. Volatility is surging and equities are moving further into the red as a return to full-blown conflict now looms.”
