The recent escalation between Israel and Iran marked by a weekend of missile and drone strikes has sparked renewed fears about the stability of global energy markets. Though crude oil prices briefly surged following the conflict, they have since retreated. Nevertheless, oil prices remain about $10 higher than they were a month ago, raising concerns about a potential ripple effect on consumer costs worldwide.
Brent Crude, the international oil benchmark, climbed above $78 a barrel on Friday before easing back to around $74.50. This is significantly below the highs of nearly $130 a barrel seen in 2022 during the onset of Russia’s war in Ukraine, but still a notable increase that signals market jitters.
When oil prices rise, consumers often first feel the pinch at the fuel pump. According to Capital Economics’ David Oxley, a $10 increase in crude typically adds around 7p per litre to petrol prices. However, the impact of elevated energy costs goes far beyond just transportation. Rising oil and gas prices make it more expensive to operate farm equipment, manufacture goods, and transport food costs that can eventually be passed on to consumers.
Gas prices have also been affected, and while regulators in some regions may shield consumers from immediate price spikes, sustained volatility could influence electricity bills and heating costs over time.
Yet, the long-term impact hinges on several uncertain factors: the duration of the Israel-Iran conflict, the risk of broader regional involvement, and the possibility of disruption to shipping in the Strait of Hormuz a strategic waterway through which about 20% of the world’s oil flows. Any threat to this vital route could cause prices to spike significantly.
While the current economic backdrop is weaker than in 2022, oil-producing nations like Saudi Arabia and Brazil still hold spare capacity that could temper future price increases.
In short, the conflict could deliver an unwelcome shock to an already fragile global economy. Though the most extreme outcomes remain unlikely, markets will remain on edge until geopolitical tensions ease.
