Oil prices hit $100 a barrel for the first time since May after escalating conflict in the Middle East triggered fresh concerns about global energy supplies.
Brent crude, the international benchmark, climbed by more than 6% on Thursday after several consecutive sessions of gains. The increase followed intensified US military action against Iran and new attacks on shipping routes used to transport oil from the Gulf.
The sharp rise has revived fears that households and businesses could face higher fuel, transport and food costs if energy prices remain elevated.
Oil prices hit $100 after Red Sea attacks
Oil prices hit $100 shortly after Houthi forces in Yemen attacked oil tankers in the Red Sea.
The Red Sea is a crucial trade route linking the Middle East, Europe and other international markets. Saudi Arabia has also used the route to reduce its reliance on the Strait of Hormuz, another strategically important waterway affected by the conflict.
Any serious disruption to shipping could delay oil deliveries, increase insurance costs and force tankers to take longer and more expensive routes.
Traders are especially concerned that the conflict could affect exports from major energy producers across the Gulf.
Brent crude rebounds after ceasefire collapse
Oil prices had previously fallen after a temporary ceasefire between the United States and Iran eased concerns about supply interruptions.
The decline briefly pushed crude prices back towards levels recorded before US and Israeli military action against Iran began on February 28.
However, the ceasefire later broke down, bringing supply risks back into focus.
US Secretary of State Marco Rubio said this week that Iranian leaders were not ready to reach an agreement, reducing expectations of a quick diplomatic solution.
The comments added to uncertainty across global commodity markets and encouraged investors to prepare for further price volatility.
Natural gas prices also rise
Oil was not the only energy market affected by the worsening conflict.
The benchmark UK natural gas price has risen to about 150 pence per therm, compared with roughly 98 pence at the end of June.
The increase could raise electricity and heating costs, particularly if supply concerns continue into the colder months.
Higher gas prices may also affect industries that rely heavily on energy, including manufacturing, chemicals, agriculture and food production.
Oil prices hit $100 and threaten inflation progress
The return of oil prices above $100 could complicate efforts by governments and central banks to bring inflation under control.
Higher crude prices normally push up petrol and diesel costs. They can also make goods more expensive because companies must pay more to transport materials and finished products.
Businesses may eventually pass those additional expenses on to customers through higher prices.
Food can be especially vulnerable because farming, processing, refrigeration and delivery all depend on fuel and energy.
Inflation had recently eased in both the United Kingdom and the United States.
UK inflation fell to 2.6% in the year to June, helped partly by slower growth in petrol and diesel prices. US inflation stood at 3.5%.
The latest energy surge has raised doubts about whether that improvement can continue.
UK petrol and diesel prices climb
British motorists are already facing higher costs at fuel stations.
New figures showed that average UK petrol prices had increased by about five pence a litre since the beginning of July, reaching almost £1.56.
Diesel prices were averaging around £1.72 a litre, according to the RAC.
Further increases in wholesale oil prices could place additional pressure on retailers and lead to more expensive fuel in the coming weeks.
The impact would be felt most strongly by households with long commutes, rural communities and businesses operating large vehicle fleets.
US gasoline rises above $4 a gallon
Drivers in the United States are also paying more.
Average gasoline prices have climbed above $4 a gallon, compared with about $3.92 a month earlier, according to motorist organisation AAA.
The increase could affect consumer spending because households may have less money available for shopping, travel and other services.
Fuel prices are also politically sensitive in the US because they are highly visible and can quickly shape public views about the economy.
Higher energy costs create problems for central banks
Economists warn that rising energy prices could make it harder for central banks to reduce interest rates.
Jonathan Raymond, an investment manager at Quilter Cheviot, said more expensive fuel and energy could spread through the wider economy by increasing business costs and raising the price of food and other goods.
Persistent energy inflation could pressure policymakers to keep borrowing costs higher for longer.
That would be difficult for mortgage holders, companies and consumers already facing expensive loans.
Bank of England expected to remain cautious
The Bank of England has held its main interest rate at 3.75% during its last four meetings.
Paul Dales, chief UK economist at Capital Economics, said the central bank was highly likely to leave rates unchanged again.
Analysts still believe cuts could become possible next year, but only if the rise in energy prices proves temporary and wider inflation continues to ease.
A prolonged oil shock could delay those reductions.
US Federal Reserve faces similar challenge
The US Federal Reserve is also balancing pressure to lower borrowing costs against the need to control inflation.
Kevin Warsh, the newly appointed Fed chair, recently told Congress that the central bank would not accept persistently high inflation.
US President Donald Trump had repeatedly called on Warsh’s predecessor, Jerome Powell, to cut interest rates and has also made clear that he expects lower borrowing costs.
However, the Federal Reserve kept rates between 3.5% and 3.75% at Warsh’s first meeting as chair.
Warsh said the central bank remained committed to restoring price stability as the Middle East conflict pushed up costs.
What happens next for oil markets?
The direction of oil prices will depend heavily on developments in the Middle East and whether key shipping routes remain open.
A diplomatic breakthrough could reduce supply fears and bring prices down.
Further attacks on tankers, ports or oil infrastructure could push crude prices even higher.
Markets will also watch production decisions by major oil-exporting countries and any release of emergency reserves by large consuming nations.
For now, oil prices hitting $100 represents a warning that geopolitical instability can quickly reverse progress on inflation and place renewed pressure on households, businesses and central banks worldwide.
