Ask Onix
Energy markets react as Middle East conflict escalates
Global financial markets faced sharp declines Tuesday as the intensifying conflict in the Middle East drove energy prices to multi-year highs, raising concerns over inflation and economic stability.
UK gas prices hit three-year peak
British gas prices surged by 46% to 165 pence per therm, the highest level since the early months of Russia's invasion of Ukraine in 2022. By early afternoon, the price had eased slightly to 146p per therm. The spike followed QatarEnergy's decision to halt production at key facilities after reported military attacks.
The company also suspended output of aluminum, methanol, and urea, a critical component in fertilizers, further tightening global supply chains.
Stock markets tumble across continents
Wall Street opened sharply lower, with the Dow Jones Industrial Average dropping nearly 900 points. The S&P 500 and Nasdaq followed suit, mirroring steep losses in European markets. The UK's FTSE 100 fell 2.6%, while Germany's DAX and France's CAC-40 declined by 3.6% and 2.9%, respectively.
In Asia, Japan's Nikkei closed 3.3% lower, with major exporters like Toyota and Sony among the hardest hit. Hong Kong's Hang Seng and China's Shanghai Composite also ended the day in negative territory. South Korea's Kospi, closed Monday for a holiday, plunged over 7% on its reopening.
Oil prices climb amid shipping disruptions
Brent Crude briefly surpassed $85 a barrel, marking a 17% increase from Friday's close. While oil prices have not risen as sharply as gas, analysts warn that prolonged disruptions could push crude above $100 a barrel. Such a scenario could add up to 25 cents per gallon to US gasoline prices, according to Srinivasan Balakrishnan of Avellon Intelligence.
Shipping through the Strait of Hormuz, a critical chokepoint for 20% of the world's oil and gas, has ground to a halt after recent attacks on vessels. Ebrahim Jabbari, an adviser to Iran's Islamic Revolutionary Guard Corps, warned ships against entering the region, stating they would face a "serious response."
Logistics costs soar as insurers pull back
The cost of hiring a supertanker to transport oil from the Middle East to China reached a record $400,000 per day, nearly double last week's rates, according to London Stock Exchange Group data. Sanne Manders, president of logistics platform Flexport, told the BBC the strait was "effectively closed," citing both carrier reluctance and insurers' refusal to cover the risks.
Manders added that shipping companies were likely to raise rates globally in anticipation of higher fuel costs.
Governments brace for economic fallout
US President Donald Trump is scheduled to meet with Treasury Secretary Scott Bessent and Energy Secretary Chris Wright on Tuesday to address rising energy costs. Secretary of State Marco Rubio indicated that Washington would unveil measures to mitigate the impact, acknowledging that higher prices were an expected consequence of recent military actions.
In the UK, Alasdair Locke, chairman of Motor Fuel Group, warned that sustained high oil prices would inevitably lead to higher fuel costs at the pump. "It will depend on how long and how severe the price increases are," he said.
Household energy bills in the UK are shielded until July by a government-imposed price cap, but analysts warn that consumers could face higher costs if the conflict persists.
Inflation fears loom over central banks
Economists warn that rising energy prices could reignite inflation, complicating central banks' plans to cut interest rates. Higher costs for fuel, transport, and food could dampen consumer spending and slow economic growth, particularly in energy-importing nations.
The conflict's economic ripple effects are drawing comparisons to the aftermath of Russia's invasion of Ukraine, which triggered a global energy crisis and sent prices soaring for businesses and households alike.
