Brent crude surged by 6.9% to 100.6 dollars a barrel shortly before 3pm on Thursday, reaching a two-month high after fresh attacks in the Red Sea threatened to escalate the Middle East conflict further.
US-Iran ceasefire breaks down
The price of oil shot up to 100 US dollars a barrel on Thursday (July 23) for the first time in two months, since the US-Iran ceasefire deal broke down. The increase comes 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.
Threat of military punishment
The President threatened to inflict a “major military punishment” on Iran and the Houthis if the attacks continue. 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.
Economists predict sustained high prices
Economists at Oxford Economics said they think shipping disruption is now “increasingly likely” to continue, forecasting that oil prices will be above 85 dollars 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.”
Impact on UK drivers
The impact of the increase in oil costs is being felt across the world, particularly affecting those with petrol or diesel vehicles. After briefly dropping down when the ceasefire was announced, petrol and diesel prices have shot back up again. UK drivers are currently paying an average of 154.2p per litre of petrol, while people who own diesel vehicles are paying 170.8p on average. In Greater Manchester, owners of petrol cars are currently being charged 3.3p less than the national average of 154.2p. Diesel car drivers in the region are paying 3.2p less than the national average.
