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Oil prices hit peak not seen since 2022 amid Iran conflict fears
Brent crude briefly climbed above $126 a barrel on Thursday after reports emerged that the US military has drafted plans for potential strikes against Iran, escalating tensions in the Middle East.
US military prepares strike options
According to a report by Axios, the US Central Command has developed a strategy for a series of rapid, high-impact airstrikes targeting Iranian infrastructure. The plan aims to break the current deadlock in negotiations with Tehran. The BBC has reached out to both US Central Command and the White House for official comment but has not yet received a response.
Another proposal reportedly under consideration involves securing a portion of the Strait of Hormuz to reopen the critical waterway for commercial shipping. This could potentially require ground troops, Axios noted, citing unnamed sources.
Strait of Hormuz remains a flashpoint
The Strait of Hormuz, a vital chokepoint for global energy supplies, has been effectively closed since the conflict escalated. Approximately 20% of the world's oil and liquefied natural gas (LNG) typically passes through the strait, and its disruption has sent shockwaves through energy markets.
Iran's Supreme Leader, Mojtaba Khamenei, issued a statement on Thursday asserting that Tehran would secure the strait and eliminate what he described as "the enemy's abuses of the waterway." The remarks followed earlier threats by Iran to retaliate against US and Israeli airstrikes by targeting ships in the region.
The US has maintained a blockade of Iranian ports, vowing to keep it in place as long as Tehran continues to threaten vessels attempting to navigate the strait.
Global markets react to rising tensions
Oil prices surged by nearly 7% earlier in the day, with Brent crude reaching $126.31 a barrel-the highest level since Russia's full-scale invasion of Ukraine in 2022. However, prices later retreated to around $114 as trading volumes shifted to the July futures contract, which was valued at approximately $109 a barrel.
Naveen Das, a senior oil analyst at Kpler, warned that prices nearing $125 a barrel could trigger broader economic concerns. "Businesses and politicians start to get nervous at this level," he told the BBC's Today programme. "We might see more efforts to de-escalate, because the ripple effects extend beyond oil to inflation and everyday costs."
Economic fallout spreads beyond fuel
The conflict's impact is already being felt at petrol pumps. In the UK, the average price of petrol has risen to 157p per litre, up 24p since the start of the war, according to the RAC. Diesel prices have climbed even more sharply, reaching 188.5p per litre-an increase of 46p.
"While petrol prices at the pump have fallen slightly, wholesale costs are now higher than at any point since the war began,"
Simon Williams, RAC Head of Policy
The UK government has cautioned that the conflict could lead to higher energy bills, food prices, and flight costs. Some airlines have already raised fares or reduced flight schedules, while fertiliser prices have begun to climb, threatening to push up food costs in the coming months.
Susannah Streeter, chief investment strategist at Wealth Club, warned that elevated energy prices could persist into next year. "Urea shipments, a key component of fertiliser, are blocked, and costs have surged for farmers worldwide who didn't stockpile in advance," she said. "These expenses will likely be passed down the supply chain, driving up the cost of everyday goods later this year and into 2025."
Markets mixed as investors weigh risks
Stock markets in Asia closed lower on Thursday, with Japan's Nikkei dropping 1.1% and South Korea's Kospi falling 1.4%. In contrast, European markets showed resilience, with London's FTSE 100 rising 1.6%, Germany's Dax climbing 1%, and France's CAC 40 edging up 0.1%.
Energy executives met with President Donald Trump on Tuesday to discuss strategies for mitigating the war's impact on US consumers, further stoking concerns about prolonged disruptions to energy supplies. Will Walker-Arnott, an investment manager at Raymond James, questioned how long the Trump administration could endure the economic strain.
"People are increasingly worried about the inflationary effects of rising oil prices,"
Will Walker-Arnott, Investment Manager at Raymond James
