If you have just filled up your car at the gas pump or are worried about gas prices, you might be curious about what is going on in the world oil markets. Oil prices rose sharply after Israel attacked Iran in a dramatic escalation of violence in the Middle East.
Why are oil prices rising
Brent crude, a leading oil price benchmark, rose more than 10% in an instant after the attack. It even touched its highest level since January momentarily. The greatest concern here is that this war has the potential to affect the supply of oil from a region that produces huge volumes of the world’s oil.
This kind of disruption unsettles traders and markets because it can affect anything, from the price you pay at the pump to prices in the supermarket.
Market reaction so far
Prices declined later in the day, but modestly, and they’re still hovering near 5% above yesterday’s closing price. At about $74.47 a barrel, oil is still up today compared to just 24 hours earlier.
Yet, this is still well below the highs we saw in 2022, when oil jumped above $100 per barrel after Russia’s invasion of Ukraine.
Stock markets and safe assets impact
The rise in oil prices has unsettled investors. The Japanese Nikkei fell nearly 1%. The UK FTSE 100 fell 0.3%. US stocks opened down, with the Dow being down by 1.5% and the S&P 500 being down by 0.8%.
At the same time, investors flocked to assets that are generally viewed as “safe” in times of adversity, such as gold and the Swiss franc. Gold rose 1.2% to $3,423.30 an ounce, the most in almost two months.
What happens next?
Certain analysts say that this would de-escalate very quickly, like in the case of Iran and Israel when they bombarded each other last year, or escalate into an even bigger conflict that would cut the supply of oil from the region.
Capital Economics analysts report that if Iran’s oil output were targeted directly, prices would explode to $80–$100 a barrel. But then it might be short-lived, because the other producers would retaliate by producing more oil to fill the gap.
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Why it matters to you
Higher oil prices affect us all—from petrol prices at the pump to food and products that rely on oil to produce and ship.
The UK’s RAC says it’s “too soon” to say if this will make a difference to petrol pump prices. It depends on whether or not the hike in the market sticks and how much they charge consumers.
Shipping route under threat
In particular, one would be interested in looking at the Strait of Hormuz—a very narrow channel through which about 20% of the world’s oil moves. If Iran closes it down or strikes nearby installations, it may push prices through the roof.
Last thing to know
This attack highlights just how much conflict in the Middle East can affect everyone, not just people in the region. The next few days will be key in seeing whether the situation calms down or gets more serious.
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