MOTORISTS can expect to see a sharp spike in prices at the pump after global oil prices soared in response to the ongoing conflict in the Middle East.
Global financial markets finally reopened on Monday after the weekend as concerns grow over the wider ramifications of ongoing attacks on Iran by the US and Israel.
According to United Kingdom Maritime Trade Operations (UKMTO), at least three ships carrying oil have been struck by missiles in the Strait of Hormuz, a narrow body of water between Oman and Iran where 20 per cent of the world’s oil and gas is shipped.
Fears are mounting that a full closure of this vital shipping route could lead to a severe disruption of global energy supplies.
That would have a significant knock-on effect on inflation, interest rates and commodity prices, potentially fuelling a worldwide economic downturn.
Brent crude – the global benchmark for oil prices – leapt by around 13 per cent in early trading to reach a 14-month-high of $82 (€70) a barrel, before settling at around $79 (€67) by early morning.
The price continued to drop before spiking upwards again on Monday morning, reaching $80 (€68) per barrel.
But experts believe prices could exceed $100 (€85) per barrel if the conflict becomes drawn out.
The Organisation of Petroleum Exporting Countries and its allies (OPEC+) said it would increase output to around 206,000 barrels per day starting in April in an attempt to mitigate any shortfall caused by closure of the Strait of Hormuz.
Natural gas prices also surged by 25 per cent with investors instead pumping their cash into safer assets, such as gold which added 2.3 per cent to its value.
“The most immediate and tangible change affecting oil markets is the effective disruption of traffic through the Strait of Hormuz, which prevents 15 million barrels per day of crude oil from reaching the markets,” said Jorge Leon, head of geopolitical analysis at Rystad Energy.
He added: “Unless there are signs of peace, we anticipate a significant increase in oil prices.”
Robin Mills, chief executive at Dubai-based consultancy Qamar Energy and a former executive at oil giant Shell, said: “The jump in prices will feed through almost immediately because the oil traders are very much following the news too.
“At the moment, oil prices are not particularly high, they are still below where they were even two years ago so we’re not in full-blown oil crisis mode yet.”
Edmund King, president of the AA motoring association, said: “The turmoil and bombing across the Middle East will surely be a catalyst to disrupt oil production globally, which will inevitably lead to price hikes.
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“The magnitude and duration of pump price increases depends on how long the conflict goes on.”
The current conflict, which saw the US successfully kill Iranian supreme leader Ayatollah Ali Khamenei in an air strike over the weekend, has also had repercussions on the stock market.
The Spanish Ibex opened nearly 2.4 per cent down, while in London, the FTSE 100 stock market index dropped by one per cent.
International Airlines Group (IAG), a British-Spanish multinational airline holding company which owns operators including British Airways, Vueling and Iberia, was down nearly 10 per cent on the FTSE 100 as thousands of flights were cancelled worldwide.
The impact is likely to be prolonged after US president Donald Trump admitted that the conflict could last for four more weeks until all US objectives were met.
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