Oil, gas and stocks fluctuate over Iran war – what does it mean for your money, pension and energy prices?
Wholesale oil and gas prices remain high after a bad start to the week, fueling fears that the crisis in the Middle East will deal a long-term blow to the global economy.
The widespread conflict that broke out after the US and Israel attacked Iran over the weekend hit commodity prices and stock markets; This has led to concerns that this impact will spill over to working people, who could see price increases for fuel, heating energy and – if left unchecked for too long – some food and daily products.
This latest increase comes after a tumultuous year for global economies, including U.S. President Donald Trump encouraging tariffs on countries around the world amid long-running tensions between Iran and Israel and Russia’s invasion of Ukraine, which has greatly affected commodity prices.
In response to the latest developments, the price of oil rose by nearly a fifth (18.5%) this week to almost $84. If attacks continue for a long time, this could have effects on inflation, interest rates and commodity prices.
Share markets are reacting to the uncertainty, with the FTSE 100 falling this week and indexes in Asia suffering three straight days of losses.
Analysts have also warned that household energy bills could rise by 10 per cent from July in the UK following sharp rises in wholesale gas prices.
Here, Independent takes a look at how the final conflict may affect you.
oil and gold
The price of Brent oil continued to rise, although it calmed somewhat after an initial rise of almost 10 percent on Monday. It is at $83.70 at the time of writing, up more than 18 percent over the week. For context, Brent was priced between $60-$70 for most of last year; It rises to well above $110 in 2022.
Brent crude oil is a global reference point in oil pricing. Although this specific type of oil is “stuck” in the Strait of Hormuz, its price is affected by supply and demand elsewhere. When it changes, it affects many other oil prices.
OPEC, the organization that controls the production levels of oil-exporting countries, has increased the amount of oil it produces starting next month in order to eliminate the effects of the current situation.
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Approximately one-fifth of the world’s oil and gas passes through the Strait of Hormuz; Therefore, Iran keeping this strait closed for a long time will have a greater impact on the rise in prices. As the cost of fuel increases, production, transportation and energy will become more expensive; This will potentially mean rising bills and goods prices, thus increasing inflation.
Susannah Streeter, chief investment strategist at Wealth Club, said President Trump’s decision to escort tankers through the Strait of Hormuz – hoping to avoid attacks in the process – did not ease market concerns.
“Oil prices have rebounded sharply and are trading around $84 per barrel, the highest level since late January,” he said.
“President Trump’s promises to escort tankers and provide backstop insurance do not appear to have eased concerns. But industry data showing US crude oil inventories rose by 3.5 million more than expected last week is limiting gains somewhat.”
He added that pressure on gas prices has “increased” again as Qatar’s natural gas facility remains closed following this week’s coup, further affecting supply lines. This means a more immediate impact for UK energy, with suppliers pre-empting increased charges by removing certain tariffs from the market.
“The rise in gas prices is already being felt by energy customers in the UK, with major providers pulling out some of the cheaper fixed-price deals. Household budgets could face a further hit given rate cut hopes are fading. Higher energy prices are likely to push up the headline rate of inflation, keeping central bankers cautious about voting for further rate cuts,” Ms Streeter said.
Meanwhile, gold was another commodity that rose on Monday but has declined since then. It remains around $5,150 after an 18 percent climb so far this year. The precious metal is often the safe haven that investors seek when uncertainty prevails in other financial markets.
Oil, inflation and interest rates
The numbers above are what’s going on Now; knock-on effects on fuel and economy, Next.
First, higher oil costs naturally mean that fuel will become more expensive; This is partly why OPEC announced additional supplies to prevent costs from getting too high. However, experts suggest that if the Strait of Hormuz is closed for a long time, oil may quickly rise to the 90-100 dollar range.
But it’s still lower now; However, if even this increase lasts for a long time, it will soon be reflected in gas stations.
From a long-term perspective, Ryan Sweet, chief global economist at Oxford Economics, suggested that a continued closure of the Strait would ensure oil prices remain high in the first half of the year.
“We estimate that this could push the average oil price to almost $80 per barrel in the second quarter, then gradually decline to just over $60 towards the end of the year. Gas prices will also rise sharply,” he said.
Elsewhere, it’s important to note that higher energy costs (not just at the gas pumps, but also on heating bills, production costs, everything transportation-related, and more) are having an inflationary impact. Although inflation in the UK is gradually falling and is forecast to reach 2 per cent by the spring, these events could derail this target. Inflation in the EU was already below 2 percent.
Additionally, the potential for inflationary price movement in the UK means we will be much less likely to see a cut in interest rates at the end of this month as expected last week; The Bank of England is likely to take a cautious stance and extend its interest rate cut decision until April.
Stock markets, investments and retirement
The FTSE 100 has fallen almost 3 percent this week as investors reacted negatively to the unfolding events. But it was up 0.2 percent in early Thursday morning trading due to a possible change in sentiment.
US markets also fell at the start of the week, and despite Wednesday’s rise, the S&P 500 is still down 1.1 percent for the week. Futures markets are showing an open about 0.4 percent lower later on Thursday.
Germany’s DAX, France’s CAC 40 and the Euro Stoxx 50 are each also in the red between 4 and 5 percent for the week, but each rose very slightly on Thursday.
Overnight in Asia, almost all major countries saw their primary indexes finally rise after falling for three consecutive days; Saudi, Australia, Japan, China, Hong Kong, South Korea, India and Vietnam are all in the green, some of which have already completed their trading days at the time of writing.
All this means that people with a range of investments, whether stocks, ISAs, workplace pensions or SIPPs, could see declines at the start of this week.
Generally speaking, while pension levels can rise and fall with market events, if you’re not close to retirement age, it’s generally not something experts say you should be unduly worried about about the extent of panic trading that could damage long-term returns.
