Oil, Gas Surge as Markets Slide Amid Escalation Fears

Oil and gas prices have surged sharply as escalating geopolitical tensions fuel concerns over potential supply disruptions. At the same time, global stock markets have fallen, reflecting investor anxiety about a broader conflict and its impact on economic stability. Traders are closely monitoring developments, as rising energy costs could intensify inflationary pressures and slow growth. The market volatility highlights how quickly geopolitical risks can ripple through energy and financial systems worldwide.

Fuel costs are climbing rapidly while stock markets around the world are sliding, as the escalating Middle East conflict unsettles investors and raises fresh questions about its duration.

In the UK, wholesale gas prices jumped to a three-year peak on Tuesday after already surging the previous day. At the same time, Brent crude briefly crossed $85 a barrel, a level not seen since mid-2024. Equity markets across the US, Europe and Asia reacted sharply, with widespread sell-offs hitting major indexes.

Since military action by Israel and the US against Iran, followed by Tehran’s retaliation, markets have been bracing for the economic fallout, particularly the potential impact on inflation and borrowing costs. Analysts warn that turmoil in a region central to global energy production and shipping lanes could echo the shockwaves felt after Russia’s invasion of Ukraine, which drove up energy bills and intensified global price pressures.

The UK’s Office for Budget Responsibility cautioned in its latest fiscal outlook that further escalation could derail forecasts and deliver serious consequences for both the British and global economies. German Chancellor Friedrich Merz, speaking during a White House meeting with Donald Trump, also expressed concern about the economic strain, stressing the urgency of ending the conflict.

Markets reflected that anxiety. London’s FTSE 100 dropped 2.75%, while Germany and France saw declines of more than 3%. In the US, the S&P 500 opened sharply lower before trimming losses to finish down 0.9%. Across Asia, Japan’s Nikkei 225 fell 3.3%, Hong Kong’s Hang Seng Index declined, and South Korea’s Kospi plunged more than 7%.

UK benchmark gas prices briefly climbed above 165p per therm, levels last seen a year into the Ukraine war, before settling lower but still significantly higher than Monday. Prices have doubled since weekend airstrikes began. The surge followed production suspensions by QatarEnergy after reported attacks on its facilities. The company later confirmed it would also halt output of materials such as aluminium, methanol and fertiliser components.

While Britain’s energy price cap will delay immediate effects on household bills, sustained high wholesale costs could filter through later in the year. Oil has risen less dramatically than gas due to more flexible supply options, yet elevated crude prices still threaten to push up transport, food and fuel expenses.

A renewed spike in inflation could complicate plans by central banks to lower interest rates in the coming months. Shipping disruptions are compounding concerns. Roughly one-fifth of global oil and gas flows through the Strait of Hormuz, but vessel traffic has stalled after recent attacks. An adviser to Iran’s Revolutionary Guard warned ships to avoid the area or face consequences.

Transport costs are already soaring. According to data from the London Stock Exchange Group, hiring a supertanker from the Middle East to China hit a record $400,000 per day, nearly double last week’s rate. Sanne Manders of Flexport described the vital waterway as effectively closed, citing both carrier caution and insurers unwilling to underwrite the risk. He suggested shipping prices worldwide may soon rise in anticipation of higher fuel expenses.

Motorists could also feel the pinch. Alasdair Locke of Motor Fuel Group warned that sustained increases in crude prices would inevitably push up costs at petrol stations, with the final impact depending on how high and how long, oil prices remain elevated.

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Source: BBC‍