- Oil prices jumped to a 2-year high after reports of US plans for potential action in the Iran war.
- Brent crude rose by almost 7% to over $126 a barrel before falling back.
- The key Strait of Hormuz waterway remains closed, disrupting about 20% of the world's oil and LNG shipments.
The global energy market has been on edge this week as peace talks between the US and Iran appear to have stalled, with tensions escalating in the Middle East.
The US Central Command has prepared a plan for a wave of "short and powerful" strikes on Iran, according to a report by Axios, a US-based news site. The plan aims to break the deadlock in negotiations with Tehran.
Background: The Iran War and its Impact on Global Energy Markets
The Iran war, which began in February 2022, has had a significant impact on global energy markets. The conflict has disrupted the flow of oil and LNG through the critical Strait of Hormuz, a waterway that connects the Persian Gulf to the Gulf of Oman.
About 20% of the world's oil and LNG shipments pass through the Strait of Hormuz, making it a crucial chokepoint in global energy trade. The conflict has pushed up oil prices, which have surged by over 50% since the start of the war.
Global Energy Prices Surged Amidst Escalating Tensions
Brent crude oil prices rose by almost 7% to over $126 a barrel on Thursday, the highest level since Russia's full-scale invasion of Ukraine in 2022. However, the price fell back to around $114 a barrel as the futures contract for June delivery expired.
The sharp switch in oil prices was partly blamed on the expiration of the June futures contract, which contributed to its drop, said Naveen Das, senior oil analyst at Kpler. The more active July contract was trading lower at around $110 a barrel.
Potential Impact on Consumers and Businesses
The jump in oil costs since the start of the Iran war has pushed up pump prices for motorists. In the UK, petrol currently costs an average of 157p a litre, up 24p from its pre-war price. Diesel is at 188.5p per litre, up 46p compared with its pre-war price.
The UK government has warned that people could face higher energy, food, and flight ticket prices as a result of the war. Some airlines have already started raising fares or reducing flights, while fertiliser prices have also started to increase, which could have a knock-on effect on food prices.
Looking Ahead: The Potential Consequences of Escalation
The potential impact of the war on global energy markets and consumers is significant. The sharp switch in oil prices has left businesses and politicians on edge, with costs remaining high into next year, according to Susannah Streeter, chief investment strategist at Wealth Club.
The US said it would blockade Iranian ports for as long as Tehran continues to threaten vessels that try to use the Strait of Hormuz, severely disrupting global energy shipments. Iran retaliated against US-Israeli airstrikes by threatening to attack ships in the waterway.
